Archive for the ‘Angels’ Category
Tuesday, May 25, 2010 | Written by Erik Rostad
Posted under: Angels, Financial Concerns, Government |
Tags: 120 day sec review, chris dodd, securities and exchange commission, senate finance bill |
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Last month, we wrote about the detrimental proposals in Chris Dodd’s financial bill that would affect entrepreneurs. Luckily, the original draft containing these provisions did not proceed in the finance reform bill passed last week by the Senate, and Angel Investors and other small business funding sources dodged a major bullet.
As reported in our previous blog, Chris Dodd wanted to add a provision for entrepreneurs seeking Angel funding to go through a 120 day Securities & Exchange Commission review. In the world of start-ups, a 120-day review would render most new companies dead as competition would reach the market before the start-up. The competition would likely be foreign competition that didn’t have such arcane 120-day rules.
Be thankful this part of the financial bill did not go forward.
Tags: 120 day sec review, chris dodd, securities and exchange commission, senate finance bill | Posted under Angels, Financial Concerns, Government | No Comments
Thursday, April 22, 2010 | Written by Erik Rostad
Posted under: Angels, Financial Concerns, Government |
Tags: angel investors, chris dodd, financial reform bill, start-ups |
3 Comments
This morning’s Wall Street Journal described the impact Senator Chris Dodd’s financial reform bill will have on Angel Investing if it gets passed as it currently stands. Remember that Angel Investors are those who fill the financing needs between the Friends & Family stage and raising capital through banks or venture capital. They fill a very important role in the world of start up companies.
Here is a list of how the proposed bill will negatively affect entrepreneurs and start-ups:
- The bill proposes to raise minimum net worth & income levels for Angel investors. Right now, Angel Investors must have a total net worth of $1 million and have income of $250k a year in order to invest in a start up. This bill proposes to raise those levels to $2.3 million net worth, $450k income. This would effectively eliminate 77% of current angel investors.
- The bill proposes a requirement that start-ups file with the Securities & Exchange Commission (SEC) if they are seeking Angel Investment. The SEC will then conduct a 120-day review of the start-up I guess to determine if they need the funds. 120 Days! 4 months! In 4 months, other countries will have started the business and deemed the new US start-up useless.
- As the WSJ states, this proposed bill also seeks to change the rules for a federal pre-emption for state regulation. Under the proposed bill, start-ups would be subject to state regulations from the 50 different states. Right now, start-ups & investors are not subject to 50 different state regulators. This would likely lead to more cost & risk for the start-up.
We’ll keep an eye on this proposed bill and see if any of these items are removed before the bill proceeds. We sure hope so for the sake of USA start-ups.
Tags: angel investors, chris dodd, financial reform bill, start-ups | Posted under Angels, Financial Concerns, Government | 3 Comments
Wednesday, March 24, 2010 | Written by Jacob Dearolph
Posted under: Angels, Government, Raising Money |
Tags: Angel Investor Tax Credit, Angels, Chris Hanks, georgia, Job Creation, Recession, small business |
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Chris Hanks with the Small Business Development and Job Creation Special Committee
Chris Hanks, a member of The Entrepreneur School’s faculty, testified Tuesday March 16th, 2010 in front of the Georgia House Committee on Small Business Development and Job Creation. Chris talked specifically on the programs and activities that assist aspiring and existing entrepreneurs throughout the state. He was also there in support of House Bill 1001, which is The Angel Investor Tax Credit Bill. As follows is an interview I did with Christ about the Angel Tax Credit and his time with the Special Committee on Small Business Development and Job Creation.
Interview with Chris:
Jacob: What is a brief description of the Angel Tax Credit.
Chris: There is a much longer story to this but basically the Angel Tax Credit is a part of a larger package called the Jobs Act of 2010 that focuses on providing a tax incentive to angel investor to invest in young start-up businesses. [Here's a link to the bill: Official site for HB 1023 - Jobs, Opportunity, and Business Success Act of 2010 - See section 9 for the Angel Tax Credit]. [Here's a link to the Angel Tax Credit Bill]
Jacob: For those who may not know what an Angel is, will you elaborate on the term?
Chris: A company is started with an idea, customers to which to market, and execution. Money is needed to fund each of these steps. Initially, that money comes from bootstrapping, the founder, friends and family, credit cards, etc… As the company grows, further rounds of funding are often needed. Angels are the next step. They are typically high net-worth individuals who invest in early stage companies with their personal capital.
Jacob: What exactly does the Angel Tax Credit provide and why is it in a jobs ‘creation’ bill?
Chris: Basically it provides a tax credit of half of the total investment, up to $50,000 to an angel investor who invests his/her capital in a young startup. There are then stipulations for the tax credit on the investment that keep the new company in the state of Georgia. The idea then is to fund young companies in Georgia and incentivize those who have money to invest in them. Then the companies grow and create jobs for the state.
Forty percent of Atlanta’s high-tech start-up companies leave the state within three years, according to a recent Georgia Tech study. “Instead of building great high-tech companies, Atlanta has become a feeder system for great high-tech companies in other states,” says study co-author Dan Breznitz.
Jacob: What are your thoughts as an entrepreneur and professor regarding the bill?
Chris: Currently, there are 22 other states that have similar incentives, and those states have benefitted from new business creation, and new jobs and new revenue. Competing states also benefit from Georgia innovation as we’ve seen entrepreneur-graduates of our schools leave our state in pursuit of capital in other states. HB 1001 will help to address this.
This bill provides an incentive for active angel investors to become more active and for those angel investors who are the sidelines to get back into game, while keeping businesses in Georgia.
Jacob: Every piece of legislation has people, champions, who are often responsible for the creation of and implementation of the bill. Who are they for the Angel Tax Credit?
Chris: This bill was introduced by TAG (Technology Association of Georgia) and has the support of the Georgia Chamber of Commerce, The National Federation of Independent Business and The Georgia Public Policy Foundation. A group was also formed to fund the lobbying efforts associated with this bill. This group is the GAIC (Georgia Angel Investors Coalition).
Jacob: What is the current status?
Chris: This bill has been successfully progressing through various committees of the House of Representatives (the House originally deals with bills related to taxes) following which the bill will go to the Senate. This coming week is a very important week for the bill as two very important committees which will review the bill and then the bill will go to the floor of the House for a full vote. Gaining support of the leadership of the House will go a long way in helping the bill successfully emerge this process in a timely fashion.
Links, Quotes, Facts:
Links:
- How Georgia can fuel job creation with early-stage capital – Mike Eckert: A venture fellow with Georgia Tech’s VentureLab and serves as an entrepreneur in residence with the Advanced Technology Development Center (ATDC).
- Lt. Governor discusses Georgia employment and Angel Tax Credit legislation – Casey Cagle: Georgia’s Lieutenant Governor
- Job Creation Committee Passes - JOBS Act of 2010 – Press Release
- Angel Investor Op-ed – Casey Cagle: Georgia’s Lieutenant Governor
- State of the Angel Investing Market, Circa October, 2009 – Knox Massey: An Atlanta Angel Investor
- Official site for HB 1023 – Jobs, Opportunity, and Business Success Act of 2010 – See section 9 for the Angel Tax Credit
Facts:
- North Carolina’s angel investor tax credit program resulted in approximately 660 new jobs per year in high-growth companies providing average wages of $58,792. The success and accolades of the program have opened the door to increasing the tax credit cap amount to $7.5 million annually.
The reason North Carolina/RTP is cleaning our clock in funding young tech companies? Tax Credits. North Carolina has had tax credits since 1996 and now has two NEW angel funds of $5M each–all due to tax credits.
- Georgia’s unemployment rate has climbed from 4.3 percent in January of ’07 to 10.3 percent today, tying the record high for Georgia and exceeding the national unemployment rate of 10 percent.
- There are more than a half-million Georgians are out of work.
Tags: Angel Investor Tax Credit, Angels, Chris Hanks, georgia, Job Creation, Recession, small business | Posted under Angels, Government, Raising Money | No Comments
Tuesday, January 5, 2010 | Written by Erik Rostad
Posted under: Angels, Banking, Bootstrapping, General Thoughts, The Entrepreneur School, Total Entrepreneurial Activity, Venture Capital |
Tags: babson, Bootstrapping, entrepreneurship in 2010, entrepreneurship predictions |
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2010 will be the Year of the Bootstrapper. It will be the year of the Entrepreneur who can figure out how to do the most with the least.
2009 was a bad year for entrepreneurs. Most predictions for 2010 show a slight improvement in conditions and funding, but still, a difficult time to start a business. But we at The Entrepreneur School believe that now is as good a time as any to start your business.
The Wall Street Journal had a great article this morning covering the different funding avenues available for Start-ups:
Angel Investors
Angel funds fell by 30% in the 1st half of 2009. Predictions are that Angel funds will stay flat in 2010. An interesting fact about angel funds is that even though the total dollar amount invested has decreased, the number of start-ups funded has increased. Fewer dollars for more entrepreneurs. The bootstrappers will win.
Venture Capital
Average deal size in the 1st half of 2009 was $5.7 million compared to $7.5 million + average from 2005 – 2008. Venture Capitalists are saving their money for companies in the late stages of development or are giving more funds to companies already in their current portfolios. Bootstrappers will be a step ahead by not having to wait on the dwindling number of venture funds to come through and will also retain more of their company.
SBA Loans
Less than 45,000 SBA loans were approved from Sept ’08 – Sept ’09, which is 36% lower than the year before. Right now, SBA loans only make up 1% of start-up lending. This is expected to increase to 5 – 10% in the near future due to the government’s stimulus packages.
The end of the article describes how Babson College, which is one of the elite entrepreneurship universities in the world, estimates that the average entrepreneur needs $65,000 to get their business up and running. In this economy, with savings accounts, nest eggs, and house values in disarray, it will be difficult for most entrepreneurs to come up with $65,000.
We at The Entrepreneur School teach ways to start businesses for much less than $65,000. There are a number of businesses that can be started where Bootstrapping is considered for each aspect of the business. One of Babson’s professors, Dr. Zacharakis states this in another way:
“Instead of capital infusions, there might be a lot more exchanges of services or trading favors.”
Take a look at the first set of entrepreneurship lessons at The Entrepreneur School.
All info and statistics for this blog post were gathered from The Wall Street Journal on Tuesday, January 5th, 2010.
Tuesday, December 15, 2009 | Written by Jim Beach
Posted under: Angels, Business Ownership, Venture Capital |
Tags: agents and brokers, angel investing, fund raising, Venture Capital |
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I had breakfast this morning with a consultant who is trying to raise money for a software technology company. The company has developed a cool technology for web sites. It actually might work for a certain sector of the web. The founders and owners of the company have , supposedly, run companies in this space before and have quite a few industry contacts.
But they hired my friend to raise some angel or VC money for them. My friend asked what percent is normal for agents that bring in funds. I told him 2% to 7%. And I started to question him about the firm, its technology, and its plans. He knew some of the answers, but his answers to many questions just demonstrated his lack of knowledge of the company and raised new questions. It was clear he barely knows the firm.
This brings several issues to mind. Why, if the founders have industry knowledge and connections, are is the company outsourcing this incredible important function? It seems to me that if the founders had such good connections, they would be able to raise the money themselves. In many ways, it raises more questions about the company. Do the founders really have such good contacts?
Also, the agent they have hired, my friend, needs to go one way or the other. He needs to just make introductions or he needs to learn everything about the firm. Being in the middle, is the worst place to be. If he represents himself as a representative of the company, only bad things can come of it. He will not be able to answer the questions well, and will hurt the prospects of the firm and will hurt his reputation with the investors.
Raise your own money! The investors are looking at the management team to judge how the firm will do. By hiring outsiders, the management team is announcing their weakness.
Tags: agents and brokers, angel investing, fund raising, Venture Capital | Posted under Angels, Business Ownership, Venture Capital | No Comments
Saturday, October 24, 2009 | Written by Jim Beach
Posted under: Angels, Bootstrapping |
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Recently, we have pointed out the horrible nature of angel investing help organizations, those guys that charge you $500 to $5,000 for advice on how to raise angel money and then introductions to some angels. These groups almost never help land funds, and the unwitting entrepreneur can spend lots of time and money chasing a dream.
So today, I wanted to tell you about a new, exciting, safe way to raise funds. This method probably wont be useful to raise $100,000, but if you need $10,000 or so, it would be a great bet for you. Fred Anderson, from Atlanta, was interested in starting a car inspection center. He tried banks and other traditional outlets, but was not able to find the resources. So, he placed an ad on Kiva.org and soon had raised the needed $7,000 from almost 200 investors in 15 countries.
Kiva.org was designed to provide micro-financing for super-small businesses in poor countries like India. You can go on Kiva, see listings of hundreds of small businesses around the world, and invest in companies that appeal to you. You invest as much or as
little as you wish, even just $25. And, incredibly, the default rate on loans like this is very small, usually less than 2%. Its a great way to help the poor and a powerful website. The site now allows U.S. based firms to list their opportunities too, which is how Fred was able to get involved. If you want to start a small business here in the U.S., we recommend giving kiva a try……
Posted under Angels, Bootstrapping | No Comments
Monday, October 12, 2009 | Written by Erik Rostad
Posted under: Angels, Raising Money, Venture Capital |
Tags: angel investors, kickstarter, musicians raising funds, Venture Capital |
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Entrepreneurs usually seek investments from three groups of people:
- Friends & Family (or FFF – Friends, Family, & Fools)
- Angel Investors – High Worth Individuals Investing their Own Funds
- Venture Capital Firms – Groups investing outside capital in large amounts
Friends & Family have always been the starting point, and are usually good anywhere from a few bucks to some tens of thousands of dollars. The Venture Capital funds are usually reserved for the likes of small companies seeking large investments to go to the next level and are usually in the ballpark of over $1 million. But a group exists in the middle for those seeking investments larger than what Friends & Family can offer, but under what a VC firm would raise.
This middle group is usually referred to as Angel Investors, and they are generally high-worth individuals seeking a bit of action with their money. They either take a small % of the company in exchange for the funds, or just invest out of a sense of adventure with no expected return.
The great thing about the Internet is that it has connected entrepreneurs to Small Angel Investors in a way that was not possible before. I say Small Angel Investors because one does not need to have a high net worth and can invest as little as $5 over the Internet. Take the site Kiva, which connects blossoming entrepreneurs from around the globe to those with extra capital. The returns are not guaranteed, nor are they percentages that VC’s like to see, but if the entrepreneur makes a return on the investment, so will you as the donor.
Also, look at an industry in the midst of dramatic changes – the music industry. In the past, a musician with a small following could approach a record label, and in exchange for their soul, could receive money to record an album, buy equipment, or tour the USA. Now that funds are all but frozen at record labels, they can no longer act as Angel Investors to promising musicians (if you look nowadays, record labels usually only pick artists who are entrepreneurs and have created an album, tour, and following all by themselves).
That role has now gone to sites such as KickStarter. Kickstarter is the self-proclaimed “funding platform for artists, designers, filmmakers, musicians, journalists, inventors, explorers…” My buddy and bandmate, Tyler Herrin, is currently using this platform to raise funds for his current album. Through Kickstarter, Tyler can raise the necessary funds for his album. And in exchange for these funds, Tyler does not have to give away the rights to his songs or a % of his earnings. What he does is offer exclusive gifts and shows for the biggest backers.
This is really a brilliant way for entrepreneurs with an artistic bent to raise funds. Kickstarter profiles are easily shared on social networking sites such as Facebook, Twitter, and MySpace.
So, whether you are an entrepreneur in Africa, a musician in Atlanta, or a small business owner in Timbuktu, there are many options available for you in which to raise funds for your endeavor. This is really where social networking can play a big part for your business/band/etc. If you have created fans of your idea/art/proposal and have kept people “in the know,” they will be more likely to financially back your endeavor when capital is required.
Tags: angel investors, kickstarter, musicians raising funds, Venture Capital | Posted under Angels, Raising Money, Venture Capital | No Comments
Monday, August 31, 2009 | Written by Jim Beach
Posted under: Angels, General Thoughts, Raising Money, Shark Tank, Venture Capital |
Tags: Raising Money, Reality TV, Shark Tank, Venture Capital |
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Welcome to another Shark Tank recap! These week’s show had some big winners and some big losers…… And we saw Barbara Corcoran’s soft side. Final count of “You are dead to me!” outbursts this episode, 4 – and 1 “then I kill you!”
The first contestant was immigrant from Ghana, Kwame Kuadey who started Gift Card Rescue. He is a great example of low risk entrepreneurship and how starting a business can help you escape the uncertainty of the job marketplace. He started this business while working for the man, but was fired recently. He buys unwanted gift cards and then sells them at a discount. He knew his numbers, was well prepared, and was very articulate. His request for funding was very reasonable. Three sharks were out quickly, saying the business was not right for them. Kevin, the bald guy, offers $150k for 50%, unusual that he is willing to be equal partners. Robert ups the offer to $200k for 50%, a really good offer. Kwame accepts, a really good deal for him. This is one of the very, very rare times when the entrepreneur is treated fairly and everyone wins. Why did it happen this way? Because he is very prepared, very effective, and had a great, solid idea.
Next is Gina Cotroneo who sells generic products with happy messages on them. She hugs each product, draws a smiley face on each package, and clearly is trying to spread good vibes with her company, Soul’s Calling. Her goal, to achieve “world happiness domination.” After several years, she only has $18k in sales. She has some cute products, but as the sharks point out, the marketplace is clearly not buying. They tell her to shut it down. Clearly, something is wrong with her company, probably her, but I disagree with the sharks, I think there is a market for these goods, but Gina needs to get out of the way and let someone else run the business for her. She asks for $600k, a ridiculous amount. Kevin tells her the business is really worth zero and tells her to quit! Robert tells her something very interesting, “the business is telling you something.” A powerful line. Businesses do tell us things, as does the marketplace.
Third is Dan Claffy who sells coffee branded items. Stupid idea. Who wants a bear what says “coffee” on it? He does have a trademark that protects him from anyone else doing this, but who cares? Someone else will want a java bear? Also, Dan tells the sharks he has tons of “commitments” for sales, for which they rightful pillar him. Don’t get commitments, get sales!! At The Entrepreneur School, we stress selling as the FIRST activity of a new business. Dan failed to do this, and he walks home empty-handed.
The next opportunity is a graffiti removal business owned by Paul Watts. Paul hopes to raise capital to franchise his business, cleaning graffiti off public spaces. He does not know how he will get communities to pay him for graffiti removal and, even more importantly, he does not known the product that removes the graffiti! He buys the chemicals off the shelf, just like anyone else can. Also, he asks for a $2 million valuation, with zero franchise sales so far! He is crazy. Horrible idea, horrible presentation. Kevin and Robert throw him a bone and offer $375 for 75% of the business. I have no idea why. There is no profit stream, so what are they seeing? Paul should take this gift and run happily. But he declines and he “is dead to me!”
Finally, Amy and Allison want $350k for 15% for a company that offers a protective slipcover for baby pack-and-play play-yards. Great idea. Being a parent, I love the idea. The two ladies try to sell the business without selling the patent, get caught, and it almost kills the deal. They have $250k sales in Target and sales to many hotel chains. Barbara offers $350k for 40%, a great deal for the ladies. Rightfully, they take the deal, a win-win for everyone.
Two successful entrepreneurs, both with good solid products, pre-existing sales, and good presentations. And some bozos……
Tags: Raising Money, Reality TV, Shark Tank, Venture Capital | Posted under Angels, General Thoughts, Raising Money, Shark Tank, Venture Capital | 2 Comments
Friday, August 21, 2009 | Written by Jim Beach
Posted under: Angels, General Thoughts, Raising Money |
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Yesterday, I had a meeting with an ex-student of mine, someone that I would consider a friend. We arranged to meet at a coffee shop close to where he works, since he was not able to get away for a longer meeting near me. In other words, I drove a long way to meet with him.
As soon as we sat down, he asked me to sign a non-compete, non-disclosure agreement. This is something that people in the entrepreneurial arena deal with all of the time. In some states, like Georgia where I live, a non-compete agreement is almost completely unenforceable. The courts simply give them no credence. But there are even larger issues at hand. Think about the message that you are sending by asking someone to sign a document such as this. “I respect and trust you so much that I want to ask your opinion on this business plan,” and I really appreciate you driving along way to meet with me, “but I don’t trust you enough to let you see this without getting some fake legal protection first!” Venture capitalists will not sign them. Entrepreneurship professors will not sign them. Angel investors will not sign them. It makes you look like a rookie. Entrepreneurs throw your non-compete agreements away!!!
Posted under Angels, General Thoughts, Raising Money | 1 Comment
Wednesday, August 19, 2009 | Written by Jim Beach
Posted under: Angels, Bootstrapping, Creativity and Ideation, International |
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I had dinner last night with a good friend’s son. This young man has been living in Angola, in western Africa, working for a worldwide construction company. The construction company is building a liquefied natural gas facility that will cost about $8 billion and is employing close to 5000 people. Angola is one of the many countries that the discovery of oil has hurt. Counter intuitively, many countries that discover oil actually suffer in the process. Instead of the oil wealth while being spread to all of the millions of inhabitants, frequently the wealth is concentrated in the hands of dictators and political leaders and the rest of the population suffers immeasurably. This, in addition to a 30 year civil war, has ravished the economy of Angola. Now, the capital of Angola is one of the top five most expensive cities in the world, is being flooded with villagers in search of work, and was not built to maintain the population of nearly 12,000,000 people.
But back to my friend’s son. He sees an opportunity to import basic electronic items, such as computers, cameras, memory cards, and printers, into the city where the construction is happening. He thinks that he can buy the items in America, even at retail prices, import them and double or triple his prices for a substantial profit margin. His biggest concern is theft or being knifed in the street, as the crime rate and the corruption rate are very high. Also, he has the problem of getting his funds out of the country. Angola has run out of foreign cash, especially dollars, and so it is very difficult to get money expropriated out of the country. His solution to these two problems is to pay a local customs official for security and then to transfer his profits into prepaid credit cards that he can easily take out of the country. This sort of international entrepreneurship can be difficult, but overall, I like his idea.
The real reason, though, that I am writing about this is the young man’s hubris. He is trying every imaginable method to reduce his tax liability. He is going so far as to as to creating a company out of Panama that will be owned by a company out of Hong Kong to manage his operations. He has found some ex-pats in country that have agreed to advance $250,000 in seed money, and has a Brazilian girlfriend to whom he wishes to give the profits, so that she can so that he can avoid paying US taxes. When I spoke with them, he said he did not need any legal contracts with either the investors or any of the other players in this little scenario, feeling that his relationships were so strong that he could succeed where others have failed. I can’t help but think of poor Icarus and his wings of wax that melted in the sun. I love the use of excitement of entrepreneurs, but beware of the hubris!
Posted under Angels, Bootstrapping, Creativity and Ideation, International | No Comments
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