Tuesday, December 28, 2010

Best Practices for Angel Investors and Entrepreneurs by Basil Peters

Newest Post: The Exit Coach

Today, many businesses are being successfully sold just two or threes years from startup.

This has created a need for a new type of professional engagement to assist young companies with the early stages of the exit process.

This new type of professional is often called an Exit Coach.

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Early Exits Workshop Videos

From the Angel Capital Association National Summit In Silicon Valley.

The Early Exits workshop was sponsored by the Angel Capital Education Foundation.

The full half day workshop is recorded on high definition video. It should also play on your iPhone or iPad. It's also all available on Youtube.

Business Valuation – What Will Your Company Sell For?

Timing Your Exit - Don't Ride It Over the Top

Selling a Business Guide Videos

This video series on Selling a Business is a practical guide on selling a business, the exit process, the exit team and how to sell for 50% more.

Angel Term Sheet Evolution Video

  • Introducing the Rosen Light Preferred Angel Term Sheet
  • This video is from a Bellingham Angel Group Education Breakfast
  • The full high definition video of this education event is online here.

Best Practices for Angel Investors and Entrepreneurs

This site is devoted to the development of best practices for angel investors and entrepreneurs. Its goal is to facilitate profitable, fair and enjoyable interactions between angels and entrepreneurs.

After being an active angel investor for about fifteen years, I realized that many of the discussions I was involved in were virtually identical to ones I'd had many times before. A good example was during the negotiation of a term sheet. These usually involve a handful of angel investors, and a few entrepreneurs, who all want to build the very best term sheet for their exciting nascent enterprise.

Unfortunately, the previous experiences, and depth of knowledge, of the individuals are almost always very different. To finalize a term sheet, everyone involved must to come to an agreement on some fundamental principles which will have a profound effect on the future of the company. Just a few of these terms include vesting, corporate structure, governance principles, financing strategy, valuation and exit strategy.

Each one of these terms includes aspects of fairness, ethics, law, business, entrepreneurship, psychology and investing. Very often, the initial opinions of the people around the table are radically different. In most cases, these are well-meaning, intelligent people who all sincerely want to find the best solution.

These negotiations are so difficult because best practices for angel investing and entrepreneurship are still being developed. When I first started angel investing, this surprised to me. I spent hours on Google expecting to find whole websites and blogs devoted to best practices for angel investing and entrepreneurship. An almost total lack of success led me to discussions with dozens of veteran angels. After a while, I realized that it's simply because this entire field is still so new that consensus on best practices have yet to emerge.

Angel investing today is similar to where venture capital investing was in the mid 1980s. Back then, there was no consensus on best practices in that industry either. As an example, twenty five years ago, most VCs used common share deal structures. It was not until the later 1980s that the preferred share structure became popular. During those times, VCs had lots of conferences where thought leaders gathered to discuss term sheets, deal structures and fund strategies. As a result, there is tight agreement today on the form of VC term sheets and definitive agreements. Angel investing will get to the same state of development even faster because we can now exchange and develop ideas on the internet.

The founding principles embedded in AngelBlog are based on a passion for entrepreneurship and a belief that alignment, governance and fairness are critically important ingredients for angel investor and entrepreneurial success.

I hope this site will accelerate the development of best practices that will help everyone from young entrepreneurs to experienced angel investors do business together more successfully and with more fun.

A good example of where I hope we get to is the ‘One Page Term Sheet.' This is not a theory, it's actually being used today by angels and angel funds to invest in west coast companies. This precedent was developed by many angels and entrepreneurs through dozens of companies and hundreds of transactions.

Other areas where this site tries to capture, and refine, best practices include: corporate structures, investment mechanics, boards, director compensation, shareholder communications, CEO Updates, share registers and share and option vesting.

In earlier times, some of the information on this site might have been considered proprietary. Many times I have seen professionals charge very high fees for this type of knowledge. I believe that in our 21st century, internet driven world, most information wants to be free.

I hope you will contribute your opinions and questions on these best practices, sample documents and guidelines. Please join me in further developing the ideas and methods to facilitate the creation and growth of many more outstanding young companies.

Comments on AngelBlog:

From Jared Still

Very helpful stuff, especially the one-page term sheet. It pays to keep it simple, up-front.
Thanks!

From The Startup Guy

Basil Peters has a great single-page term sheet

If you’re an angel negotiating with a company OR a company heading towards an angel-based round, you should have a quick peek at Basil Peters’ one page term sheet. It’s chock full of good ideas about how to come to an agreement without huge legal bills.

The site is worthwhile for other reasons, too. It has a lot of well-thought-out content that will be very helpful to both investors and startups.

From Ask the VC by Brad Feld

More Thoughts on Structuring an Angel Investment

I'm not a fan of convertible notes as the form of an angel investment.  When I'm making an angel investment, I much prefer to price the round and do a "light Series A" (simple terms, but still a preferred instrument.)  Basil Peters has a series of posts up on Angel blog that talks about the problems of Convertible Notes for Angel Investing, suggests Exchangeable Shares for Angel Investors, and even provides a One Page Term Sheet for Angel Investors.

Posted in: Angel Investing

From Sophisticated Finance by Robert Hacker

Early Stage Financing Site

Through a post by Brad Feld I came across a very informative site on early stage investment, angel financing and venture capital. The site is Angel Blog and is written by Basil Peters. Mr. Peters is a former tech CEO who achieved sufficient success to become an angel investor and then started managing technology oriented hedge funds. He writes very coherently about seed financing in all of its variations. His current posts are on friends and family financing.

Before you bombard him with requests to finance your startup, please note that he is located in Vancouver and not likely to finance a startup very far from there.

From fundfindr by Doug Schlenker

Fantastic!

Basil, by the way I ended up reading the majority of your blog this evening. Some absolutely fantastic articles of information on your site. I'll be recommending your site to others when they ask about great resources.

I'll likely go back and reread a number of your articles again, your friends and family section was fantastic.

From Kevin

I have been subscribing to your AngelBlog for a month or so, and reading past articles and presentations you have given.

I just want to thank you for sharing your insight, and the legible, plain-language manner in which it is done. The general advice available on your sites is great. This is hard to express, but your material has helped me a lot in developing a general 'philosophy' for how to start, run, and sell this company.

Keep it up!

From Iana Dogel, PhD, Alberta Ingenuity

Recently I came across your angel investment blog and got really excited about the information you provided. As a matter of fact I spent every free minute reading your website.

Cole Pluzak, EET

My name is Cole Pluzak, and I am a young entrepreneur from Toronto. I just wanted to say thanks for all your work compiling all this data together. All of your articles are well written, easy to read and erudite enough to pack the maximum data in. I learned a ton reading through this site, and even the things that do not apply to my personal situation were incredibly informative. Once again, thanks. And if you see my name in the news, know that you helped.

Raymond Luk - Managing Director - Flow Ventures

I consider AngelBlog the best one-stop source of seed funding expertise anywhere, bar none. I regularly direct entrepreneurs (and funders) there and we are using the 1-page term sheet example (with a few modifications of course) for a few of our upcoming deals.

       

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Great !!

Posted via email from jg2010's posterous

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