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Seed Capital From Angel Investors: Anurag (Anu) Nigam, President, Sand Hill Angels (Part 3)

Posted on Friday, Nov 19th 2010

By guest authors Irina Patterson and Candice Arnold

Irina: How do the angels gain access to the deals that are received?

Anu: Everything is done through Angelsoft. I think we were one of the first users of Angelsoft. Most angel groups use it.

Irina: What do you like about Angelsoft? Is there any fees?

Anu: It’s not free [now]. We were one of the early ones [to use it], so maybe we grandfathered in. But it provides everything. It’s easy to do, it’s customized, and it’s designed for angel groups and deal flow management.

Irina: So, everyone logs into Angelsoft and reviews the deals?

Anu: Right. Everyone rates the deals, and you can rank the deals based on the votes of the group. Then you talk with the top deals or any of the deals that members are interested in and want to talk about.

Irina: In the past 12 months, how many investments did you make?

Anu: We write somewhere between 8 and 12 checks a year. They’re mixed with new deals versus old deals that have follow-on money. That’s one of the advantages of being an LLC.

The LLC invests the money, and the way the LLC is structured is, any single angel member can write a check into the deal. That’s one of the basic advantages of an angel group. For the follow-on pro rata, I think, an angel group is more likely to write a check than not.

Irina: So, you make roughly one investment per month?

Anu: Yes. I would say what happens is you get a bunch of things that happen in the spring and fall, and then the slower trickles the rest of the time.

Irina: What was the average dollar amount that the LLC invested?

Anu: The LLC has a minimum of $100,000 and go to more than $500,000, depending on the deal.

Irina: What do the individual investors put in?

Anu: It’s up to each investor. There is not a minimum or maximum. Whatever anyone wants to invest, he or she can invest.

Irina: How long does it take for a company to receive funding from your group?

Anu: It varies. We even have a fast-track process where you can get funding within weeks. But, I would say, if you have a term sheet and everything, within a month to two. If you don’t have a term sheet, and we’re doing a term sheet, it could take months. That’s the experience we had with seasoned entrepreneurs who know what’s happening things happen quickly. With junior entrepreneurs who need a lot more mentoring and education along the way about what to do [it takes longer].

Irina: Do you consider valuation when you invest? And what’s the range?

Anu: Yes, 100%. It varies from $500,000 to a first round of $6 million. The market dictates that. We look at the type of company, the money it’s raising, and the market.

We have enough relationships with VCs; we know what price range they would invest in. All sorts of factors play in. The term sheet plays in, too. With valuation, it doesn’t matter if you have other factors like liquidation preferences, board rights, and other things to deal with. They are all different knobs and terms.

Irina: Do you think in terms of how much equity to take?

Anu: The way I look at it is, every company needs to see how much money they need to get to another major milestone where they either become profitable or they can raise another round of funding. So, the dollar amount is independent of anything else. Tell me that dollar amount, and I’ll analyze and understand. Does it make sense? Do you need more or less? And then, the second thing to figure out is what is the market take? Where are you? How much money do you need to raise? That will factor into what the pre-money valuation is and what percentage we get. Those are all done in magic formulas in the back of your head, based on past experience, based on where they are, where the competition is, and what kind of team they have in place, and what kind of risk factors are at stake.

Irina: What’s the usual range?

Anu: I have seen entrepreneurs give out 60% of the company to less than 10% to 20%. That’s what I’ve seen in term sheets and deals we’ve done.

This segment is part 3 in the series : Seed Capital From Angel Investors: Anurag (Anu) Nigam, President, Sand Hill Angels
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