• Angel Investing as Asset Allocation Strategy (1): Risks, Returns, Homeruns explains why you may want to allocate a portion of your investable assets to angel investing; discusses risks and returns of angel investing; and covers the concept of home runs.
• Asset Allocation Strategies (2): Easiest Way to Determine How Much to Allocate to Angel Investing talks about how long it typically takes to exit an investment and shows you the easiest way to determine how much to allocate to angel investments.
• Asset Allocation Strategies (3): Angel Portfolio Strategy of Brad Feld, Will Herman, Sim Simeonov, Et Al. goes over some of the reasons why you should reserve funds for follow-on investments and takes a quick look at the portfolio strategy of some well-known angel investors. The article also highlights the minimum number of angel investments you should make to reduce risks and increase potential payoffs.
• Asset Allocation Strategies (4): Create a Solid Angel Investment Plan to Capitalize on Portfolio Effects shows you a way to determine how much to invest in each deal; talks about typical deal size we’ve been seeing; and discusses how sticking to your angel investment plan can help you leverage the market climate.

Here, you’ll learn about allocating assets based on the company’s stage of development and your investment style; calculating the net worth requirement based on your investment criteria; and allocating your investment returns for future investments.

Angel Investing: Diversify via Multi-Stage Investments

Seed-stage is the cheapest (requires the smallest check size) to get into and generates the highest payoffs but it’s also the riskiest. David Hehman, former chair of North Bay Angels, points out that you may “want to diversify your angel investments in the same way that you diversify any portfolio: across different industries, different risk levels, and different stages (concept, growth.)”

Even so, you may want to avoid investing in industries you don’t understand just for the sake of diversification.

Will Herman, TechStars mentor and Boston angel investor, stresses:

Invest in stuff you understand – bright shining objects attract attention (“we have the basis for a cure for cancer”), but the more you know, the less shiny things often look. If you can’t judge the team, market and product relatively thoroughly, it’s probably not a wise investment.

Having said that, we understand that investors sometimes just have to get their hands on an unknown sector that they’ve developed an interest in. If this is the case, check out Angel Investing: Effective Ways to Invest in the Unknown to learn how to go about this.

Investment Styles: Active/Passive

If you want to take an active role in the company and plan to allocate a large portion to a particular startup, make sure your intention is clearly communicated with the entrepreneurs. Some founders might welcome your involvement while others might prefer to be left alone. Don’t assume anything. Make sure your interests are aligned with those of the entrepreneurs before cutting that fat check.

On the other hand, if you’re a passive angel investor who’s new to the angel investing game, you may want to start with a smaller amount and co-invest with experienced lead investors, who’ll handle everything from herding investment cats to closing the deal.

Angel Investing Net Worth Requirements and Implications

As an alternative to creating an allocation pie discussed in Easiest Way to Determine How Much to Allocate to Angel Investing, some angel investors are interested in working the numbers backwards to bring forth the net worth requirement.

Let’s say John Doe wants to

• invest $25,000 per company;
• double down on each investment (reserve 100% follow-on funds; total = $50,000 per company);
• diversify risks by investing in 20 companies; and
• allocate 10% of his net worth to angel investments.

To satisfy his criteria, he’d have to possess a net worth of:

• $50,000 per company x 20 investments = $1,000,000
• If $1,000,000 is 10% of his net worth then he must hold a net worth of $10,000,000

Just run the numbers until you’ve arrived at the figures you’re comfortable with.

Note: Seasoned angel investors suggest allocating no more than 10% of your net worth to angel investing.

Successful Exits/Returns Allocation

Congratulations, you’ve got exits!

Consider Hehman’s suggestion on allocating your returns:

Once the exit occurs, have a plan for what to do with the money. Most likely one third will go to taxes. Of the remaining, you might want to put a third back into your conservative savings, and add a third to your mad money angel investing pool.

Now, have fun and allocate away!

Sign Up

Like this series? We have more new series coming your way! Sign up for our weekly’ish newsletter now.

* Venture Hype will never sell or share your email address. And you can unsubscribe anytime.

A new source of money has arrived on the venture capital scene. So-called “super angels” have upped the ante by pooling resources from multiple investors in a way that enables them to raise considerably more money than angels have in the past.

US$500,000 is enough competition to annoy a VC firm and anyone raising a few million is considered a threat. But some of these super angels are strong enough to completely upset the VC status quo.

Former Google executive Aydin Senkut recently raised  US$40 million for his super angel fund, for example, and former PayPal executive Dave McClure is raising US$30 million. Meanwhile investor Mike Maples is in the process of accumulating more than US$73 million for his super angel purse.

Super Angels’ Super Agile Alliances

Super angels seem to also be super agile, because they find a variety of ways to create lucrative partnerships. Some are funded by teams of individual angel investors. Others are capitalized by a combination of wealthy individuals and institutional investors.

In the case of the super angels, the old saying that “the sum is greater than the whole of its parts” is definitely true, too, because the synergy of super angels seems to generate a snowball effect by attracting other investors. Once a super angel takes flight, in other words, the momentum builds and other angels come aboard – adding greater strength in numbers.

Super Angels – VCs’ Friend or Foe?

That makes super angels super appealing to entrepreneurs. But it also gives these pioneering investors serious clout. They can forge friendly alliances with VCs, for instance, by bringing them sweet investment partnership opportunities.

But they can just as easily compete with them toe-to-toe for a bigger slice of the pie. So as far as large venture capital firms are concerned, the advent of super angels is a double-edged sword.

Super angels may fill a niche and play a helpful role by supporting pre-seed and seed stage deals that are too risky for large VC funds. By partnering with these super angels, the big VCs can participate in potentially lucrative young deals.

Or the super angels might pose a threat to old-fashioned venture capitalists as upstarts with the vigor to aggressively push them aside.

Emergence of Super Angels Good for Startups

But regardless of whether large-cap venture capitalists see this new breed of investors as a good thing or an ominous sign that their golden age is fleeting, the fact is that capitalism thrives on healthy competition. Even if super angels do pose a problem for big venture capitalists, they may turn out to be a real godsend for startups and entrepreneurs hungry for financial backing.

Super angels have already been responsible for startups including Facebook, for instance, and as their success builds they will surely start to siphon away some dollars and deals that VCs used to take for granted. The bottom line is that large venture capitalists no longer have exclusive control of the game, and that bodes well for entrepreneurs and startups.

Garold Breit of UMTTO

In University Technology Transfer: Smart Managers Do Creative Deals, we visited 2 technology transfer models; learned how technology transfer deals were done in the past; reported why startup companies are a powerful launching vehicle for new discoveries; and inspected some of the newer ways forward-thinking technology transfer managers are using to construct creative deals.

According to Garold Breit, executive director at the University of Manitoba Technology Transfer Office, university technology transfer managers are now taking dilution prevention into account. They’re structuring deals in such a way that the university’s final percentage ownership may increase or decrease, depending on

• the company’s financial realities,
• commercialization efforts,
• technology development progress, and
• the technology’s attribution to the company’s success and ability to raise risk capital.

Technology Doesn’t Create Company

But if you think the technology being transferred is the key to successful commercialization, think again.

Bill Payne, a veteran angel investor and an Entrepreneur In Residence at BNZ University of Auckland Business School, stresses that the technology is never worth more than 10% of the equity of the venture. The key to success is always the management team, not the technology. It’s all about the team’s ability to execute.

Breit also avows that “a single patent or a single technology is not going to be adequate to build a successful company.”

VCs and angels invest in people rather than technology; even promising technologies will be abandoned if the company and management team aren’t already in place.

Investors fund growth and customer acquisition, not product development, notes Payne.

Private Investors Ignore Public Sector Technology

The veteran angel also points out that most private sector investors, i.e. angel investors and VCs, ignore public sector technology.

Lawrence M. Murphy of National Renewable Energy Lab (NRWL) and Peter L. Edwards of Altira Group explain why in their report, “Bridging the Valley of Death: Transitioning from Public to Private Sector Financing”:

The public sector makes early stage, high risk investments in promising innovative technologies that can address public good needs of energy diversity, national and energy security, environmental quality, and economic sustainability.

Private sector investors, on the other hand, focus their resources and efforts on market focused businesses with good profit potential – not technologies.

Hence, once, these technologies have been created, many challenges in attracting private sector investors remain, since a technology does not [make] a product, business, markets, and profits.

Requirements for Successful Commercialization

To enhance the probability of successful commercialization, and to help the startup withstand the rigors of the marketplace and the demands of the regulatory agencies, a collaboration between investors, companies, entrepreneurs, and research organizations etc. is required, states Breit.

He further suggests that flexibility in deal structures is a must in attracting new commercialization partners. Ownership (final equity positions) should be determined only when the process is moving towards real commercialization.

If you’re interested in technology transfer, take a read of “Bridging the Valley of Death: Transitioning from Public to Private Sector Financing” [PDF]. It does a good job in helping investors, entrepreneurs, and technology transfer managers understand the challenges in transferring and commercializing technology, and proposes possible solutions to close the gap and improve commercialization efforts.

University of Manitoba Technology Transfer Office

Meet Garold Breit at Biofit

• Technologies available for licensing

• Upcoming events

• Angel Investing as Asset Allocation Strategy (1): Risks, Returns, Homeruns explains why you may want to allocate a portion of your investable assets to angel investing; discusses risks and returns of angel investing; and covers the concept of home runs.
• Asset Allocation Strategies (2): Easiest Way to Determine How Much to Allocate to Angel Investing talks about how long it typically takes to exit an investment and shows you the easiest way to determine how much to allocate to angel investments.
• Asset Allocation Strategies (3): Angel Portfolio Strategy of Brad Feld, Will Herman, Sim Simeonov, Et Al. goes over some of the reasons why you should reserve funds for follow-on investments and takes a quick look at the portfolio strategy of some noted angel investors. The article also highlights the minimum number of angel investments you should make to reduce risks and increase potential payoffs.

Here, we’ll show you a way to determine how much to invest in each deal; talk about typical deal size we’ve been seeing; and discuss how sticking to your angel investment plan can help you leverage the market climate.

Angel Investment: How Much to Invest in Each Deal

After reading and completing the steps outlined in the articles above, you may then determine how much to allocate to each deal and decide on an investment timeframe.

Example:

• You’ve allocated $1 million to angel investing.
• You want to invest in 25 companies.
• You decide to allocate ($1,000,000/25 companies) = $40,000 per company (follow-on reserves included), assuming you plan to invest an equal dollar amount in each company.
• You want to invest in 5 companies per year.
• It’ll take you (25 companies/5 companies per year) = 5 years to make all the angel investments.

David Hehman, former chair of North Bay Angels, notes that each company “may take 3 to 7+ years to succeed/fail.” Those that succeed will provide additional funds for future angel investments.

Typical Angel Investment Deal Size

In the example above, we calculate that you may invest $20,000 (plus $20,000 follow-on reserves, which comes to a total of $40,000) in each company. But how much to allocate to each deal/company is really up to you.

Let’s look at the deal sizes we’ve been seeing as a point of reference:

• In 2008, Angel Capital Association found that an independent angel invested between US$10,000 and US$200,000 in a single company.
• In his book, “Fool’s Gold?: The Truth Behind Angel Investing in America,” Scott Shane finds that the typical (median) angel investment is US$10,000, whereas the average investment is US$77,000.
• Though we don’t have research to back this up, it does appear that noted angel investors are investing at a minimum of US$25,000 (plus follow-on reserves) per company.

You might write the same check size for all companies, or you might allocate more money to your favorites. No matter how you go about it, remember to also allocate a portion for follow-on investments.

Stick to Your Angel Investment Plan and Timeframe

Hehman then points out how sticking to your plan can help you leverage the market climate:

Another note about time is that when everyone is hibernating in bad time, this is a great time to invest.

If you allocate a certain amount for each quarter or year, you can stay investing evenly through lean times.

When the markets are bubbling or overheated, it is the time to be disciplined, and stick to your plan, not adding any more to your portfolio than you projected.

What Hehman is saying is that if you’ve decided to invest in 5 companies every year, don’t invest more than planned when there’s the investment climate it too “hot,” and stick to your angel investment plan even during bad times. Fact is, many greats companies like Apple, Hewlett-Packard, and Microsoft were started during the recession.

Sim Simeonov, an angel investor and a former VC, also stressed that financially-focused angel investors must invest “thoughtfully and consistently over a period of years to take advantage of portfolio effects.” Angel investing “isn’t something to casually engage with.”

Simeonov concluded:

Angels should start by asking themselves the following question: “How much can I consistently invest in startup companies for at least five years, regardless of what the public markets do?” Then, they should take this amount and look for ways to invest in 5 or more companies per year.

Coming Up

Next, we’ll look at multi-stage investments, investment styles, net worth implications, and successful exits/returns allocation.

Don’t want to miss any articles in this series? Sign up for our weekly newsletter now.

* Venture Hype will never sell or share your email address. And you can unsubscribe anytime.

Innovations from research labs are either transferred to established corporations or startup ventures. The goal is to transform innovative technologies into marketable products and applications to promote economic growth and/or create money-making opportunities.

About 80% of lab technologies are suitable for established companies and 20% for startups, Payne continues.

University Technology Transfer: Traditional Model

In the past, university technology transfer managers predominantly used traditional licensing model as a technology transfer mechanism to generate revenues. Exclusive, rather than non-exclusive licenses, with upfront initiation fees, milestone payments and running royalties were pretty much the only way things were done, Garold Breit, executive director at the University of Manitoba Technology Transfer Office tells Venture Hype.

Universities were reluctant to license their technologies to cash-strapped startups because most can’t cough up the cash required by the traditional licensing model. In occasions where lab technologies were licensed to startups, equity was accepted only as a last resort method of payment.

Startups as Effective University Technology Transfer Vehicles

Garold Breit of UMTTO

Today, forward-thinking technology transfer managers recognize that startups are a powerful launching vehicle for new discoveries. And they realize the force young companies can bring to fortify local economic development initiatives, says Breit.

It’s startup firms, rather than their bigger corporate counterparts, that are the most effective when it comes to translating university inventions into commercial products or processes.

A licensed startup would focus entirely on commercializing the technology. A mainstream company, however, would be distracted by other undertakings. Commercializing technologies that are licensed to established corporations is “fragile at best due to competing projects, possible loss of the champion, change of management, change of company direction, etc.” Caltech opines on its website.

Enterprising University Technology Transfer Managers Do Creative Deals

Enterprising technology transfer managers that favor startups aren’t afraid of experimenting different structures to achieve flexibility. They’re receptive in granting co-exclusive and limited-time exclusive licenses. And they’re much more open to taking equity deals and reducing or waiving royalty rates.

Caltech comments: “This is very important to VCs or angels because high royalty rates together with the perennial problem of royalty stacking results in a lower valuation for a company at the time when an acquisition or IPO is being considered.”

According to “Equity and the Technology Transfer Strategies of American Research Universities,” [PDF] accepting equity in place of hard cash helps relieve a startup’s cash flow burden and benefits the licensing university by making the university a part owner of the startup.

Among other benefits, it reduces the time required to generate revenue compared to a traditional license, and aligns the interests of the university and the firm (towards the common goal of commercializing the technology).

These managers aren’t just accepting plain-vanilla equity. They’re making deals with creative configurations of equity, royalties, royalty holidays, and success fees (either in cash or equity), shares Breit.

For example, to prevent dilution, university technology transfer managers are structuring deals in which the university’s final equity stake may increase or decrease, depending on the company’s financial realities; commercialization efforts; technology development progress; and the technology’s attribution to the company’s success and ability to raise risk capital, according to Breit.

But if you think the technology being transferred is the key to successful commercialization, think again.

Next, we’ll reveal what really make or break a commercialization effort; why it’s difficult to commercialize public sector technologies; and the requirements for successful commercialization.

* Special thanks to Didier Leconte of MSBiV for recommending Garold.

Don’t miss Part 2. Sign up for our weekly newsletter now!

* Venture Hype will never sell or share your email address. And you can unsubscribe anytime.

• Angel Investing as Asset Allocation Strategy (1): Risks, Returns, Homeruns explains why you may want to allocate a portion of your investable assets to angel investing, discusses risks and returns of angel investing, and covers the concept of home runs.
• Asset Allocation Strategies (2): Easiest Way to Determine How Much to Allocate to Angel Investing talks about how long it typically takes to exit an investment and shows you the easiest way to determine how much to allocate to angel investments.

Here, we’ll go over some of the reasons why you should reserve funds for follow-on investments; check out the angel portfolio strategy of several noted investors; and determine the number of angel investments you should make to reduce risks and increase potential payoffs.

Reserve Money for Follow-On Investments

Out of the funds you’ve allocated to angel investing, you’d also want to reserve a portion for follow-on investments. This will help keep your portfolio companies afloat, mitigate risks, and protect your position from getting significantly diluted, especially in a down round.

Brad Feld of Foundry Group states: “I always assumed I’d double down on each investment before the company either raised a VC round or was acquired (so – when I put $25k in, I was really allocating $50k to the company.)”

Will Herman, TechStars mentor and Boston angel investor, reasons:

Keep some powder dry for subsequent rounds – while the best return in a successful investment comes from investing earlier, holding some cash back to see how the company does and to play alongside any institutional money that comes into the company mitigates some risk and ensures you’re playing on the same terms as the rest of the investors.

John Huston of Ohio Tech Angels Fund said: “The angels’ best protection against a ‘down round’ is to have adequate dry powder to preclude the need to seek new outside investors.”

Don’t throw good money after bad, though. Like Mark Suster of GRP Partners suggests, “[if] the management team fails to deliver against even a modest set of expectations, doesn’t ship product, has internal conflict, demonstrates a lack of maturity” or if there are any other indications that the venture isn’t performing or isn’t hitting milestones, then you’d obviously steer clear from doubling down.

So, use your best judgment to decide whether the company worth your additional investment. While some startups might die despite the extra time and money, others might just work their magic and become world-class enterprises!

Angel Portfolio Strategy to Increase Expected Returns

In Angel Investing as Asset Allocation Strategy (1): Risks, Returns, Homeruns, we found that almost 5 out of every 10 companies fail. If you invest in only 5 or fewer companies, there’s a high chance that most, if not all, of them will fail. You’ll need to invest in more companies to improve the chance of success.

Sim Simeonov (angel investor, entrepreneurial computer scientist, and former venture capitalist) and Jeff Miller (angel investor and hedge funds advisor in the quantitative/automated trading space) each created computer simulations to calculate the hypothetical returns of angel investing.

Simeonov found that median returns increased substantially with portfolio size – the more companies you invest in, the better you do:

• The median expected return increases by more than
  * 50% when a portfolio grows from 5 to 10 companies;
  * 100% when a portfolio grows from 5 to 20 companies.
• The probability of making an over 2x returns on invested capital goes up by more than 50% when a portfolio grows from 5 to 20 companies.

Miller’s takeaway from his experiment: “Angel investors can expect favorable payoffs with only 10 deals, but it takes at least 20 investments to truly be safe.”

Simeonov offered a note of caution, though (emphasis added):

My advice to angel investors is to look beyond the portfolio effect. It is necessary but most likely not sufficient. It is not a panacea, especially in a world where there are more and more sources of seed-stage capital. Good deal flow and the ability to win deals will matter more and more in the coming years. Developing real differentiation above and beyond being able to write a quick check is the key.

Angel Portfolio Strategy Tip: If you’re unable to allocate money to invest in 10 companies, you may want to consider investing in an angel or private equity fund for better diversification.

Ready to create a solid, proven angel investment plan? Good. Let’s go!

Don’t miss any articles in this series. Sign up for our weekly newsletter below!

* Venture Hype will never sell or share your email address. And you can unsubscribe anytime.

Image by net_efekt

In Angel Investing as Asset Allocation Strategy: Risks, Returns, Homeruns, we reviewed why angel investing isn’t for the faint of hearts. The risks involved can be quite overwhelming.

For the ambitious bunch, though, it’s difficult to resist the attractive payoffs offered by angel investing. If we want to tap into the lucrative potentials and make sure our asses are covered, we need to understand the importance of personal asset allocation decisions and strategies.

This installment deals with the typical time required to exit an investment and the easiest way to determine how much to allocate to angel investments.

Liquidity Timeline

Angel investments are illiquid assets; you can’t just sell your positions like those in the public stock market. Angel investors primarily make money through liquidity events (e.g. M&A or IPO), which can take years to occur.

Lisa Lambert, Vice President at Intel Capital, said:

It just takes a long time to go from startup idea to a liquidity event. [...] During the boom days, it was like 2.6 years to get liquidity. And today, the latest average from NVCA, the National Venture Capital Association is 8.7 years.

Some suggest you should angel invest the money you don’t need for another 3 to 7 years or longer. But the safest bet is to invest the money you can afford to lose forever. That is, only play with the money you can lose without affecting your lifestyle.

Even if you have a sharp eye for picking promising entrepreneurs, there’s no guarantee as to when a liquidity event will occur, or if it’ll even occur. There are too many factors that’d affect the evolution and progression of a startup.

Joshua Schachter, an entrepreneur-turned angel investor, states, “I’ve been investing since 2006, in 38 deals so far, and I’ve seen exactly one exit so far.”

Thealzel Lee of VANTEC notes, “One angel investor lamented that some of his investments are in their second decade and he has no way of liquidating his initial investments.”

Having said that, there are great exits that have put a huge smile on angel investors’ face too. Otherwise, no one in their right mind would angel invest!

Mint, a consumer SaaS startup, had raised a total of US$32 million over 3 venture rounds before getting acquired by Intuit for a handsome US$170 million. At a mere age of 3 at the time of acquisition, Mint went on to become “The 2009 Poster Child of Early Exits” for angel investors.

Problem is, even the most sophisticated investor can’t say for sure how long it’ll take to get to an exit. Thus, having an asset allocation plan helps you stay on course and understand how much you’re putting at risks.

Asset Allocation Pie

David Hehman, former chair of North Bay Angels, says that the easiest way to determine how much you want to allocate to angel investments is to create a percentage of your total asset allocation:

If you have X dollars [in investable capital], you indicate that Y percentage will be for angel investing. Then, Stick to that!

To come up with the percentage, you might want to meet with your financial advisor, and discuss with him (and your spouse) how much you can you [sic] afford to lose. Angel investment money is often called mad money, as it is always high risk.

Let’s say John Doe Jr., Jane Doe, and John Doe Sr. each has $2,000,000 to invest.

John Doe Jr., who’s risk-adoring, allocates his capital this way:

Asset Class: % Allocation ($ Amount)

Public Equities: 20% ($400,000)
Bonds: 0% ($0)
Alternative Investments (Angel Investing): 80% ($1,600,000)

Jane Doe, who’s less risk-tolerant but not exactly conservative, allocates her capital this way:

Public Equities: 40% ($800,000)
Bonds: 20% ($400,000)
Alternative Investments (Angel Investing): 40% ($800,000)

John Doe Sr., who’s the most conservative among the 3, allocates his capital this way:

Public Equities: 0% ($0)
Bonds: 100% ($2,000,000)
Alternative Investments (Angel Investing): 0% ($0)

Your asset allocation pie will likely look different. How much you allocate to each asset class would depend on your risk tolerance.

But as you can see, asset allocation isn’t rocket science. You may come up with a percentage yourself to keep things simple, or discuss with your financial advisor if you have a more complex portfolio.

Having an asset allocation plan helps you understand how much money you’re allocating to high, modest, and low risk investments.

Now, let’s hop over to Angel Portfolio Strategy of Brad Feld, Will Herman, Sim Simeonov, Et Al. This article goes over some of the reasons why you should reserve funds for follow-on investments; takes a quick look at the portfolio strategy of these noted angel investors; and discusses the minimum number of angel investments you should make to reduce risks and increase potential payoffs.

Don’t want to miss any articles in this series? Sign up for our weekly newsletter now.

* Venture Hype will never sell or share your email address. And you can unsubscribe anytime.

On the back of a successful 2009 conference that featured billionaire Sir Richard Branson and 43 other prominent speakers and business success stories, PerfectBusiness is orchestrating an even bigger event this year, The PerfectBusiness Summit 2010, to be held in Las Vegas at Palms Casino’s 2,500 seat concert theater on October 7 – 8.

What the people in this room are doing is creating things which will make a difference to other people’s lives.

- Billionaire Sir Richard Branson at The Perfect Pitch 2009 conference

Watch The Perfect Pitch 2009 highlights.

The PerfectBusiness Summit 2010 is a 2-day event that showcases more than 60 powerful speakers, including world-class CEOs, founders, and business leaders, as well as celebrated investors who represent US$10 billion in investment capital.

This year, our own Joey Lo (Venture Hype) along with fantastic judges like

• John Babcock of Rustic Canyon Partners,
• C. Bryce Benjamin of Tech Coast Angels & Alta Ventures,
• Dan Bliss of PerfectBusiness,
• David Marshall of Santa Monica Capital Partners,
• John Nelson of California Capital Partners,
• Scott Sangster of Tech Coast Angels & OrganicStartup,
• Josh Stein of Draper Fisher Jurvetson & DFJ Global Network,
• Mark Suster of GRP Partners, and
• Andy Wilson of Momentum Venture Management

will once again evaluate pitch submissions received from all over the world. Promising entrepreneurs will win the opportunity to present at the PerfectBusiness Summit 2010.

If last year’s event is any indication, the judges will be up for a difficult task. The quality of talents and pitches PerfectBusiness received in 2009 were astonishing.

Are you an investor? Network in style with other investors and discover promising entrepreneurs at the PerfectBusiness Summit 2010. See a partial list of speakers and attendees and order your ticket here.

We say, give the judges an even harder time. Make them pull their hair out. Challenge them to seek out the bestest from the best.

You in? Enter the pitch competition in any of the 3 categories:

• Start Up businesses
• Established businesses
• Students (college/university)

The Top 3 submissions in each category will each win the following package:

• 2 VIP Tickets to the PerfectBusiness Summit 2010
• Airfare to Las Vegas and limousine to hotel
• 4 nights’ accommodation at the Palms Casino
• Opportunity to present LIVE to the PerfectBusines Summit 2010 audience

The winner in each category will receive:

• Perfect Pitch 2010 Award
• National media exposure
• Investor introductions
• Prize package from Deluxe Corp valued at more than US$2,000

PerfectBusiness encourages you to submit your pitch early to receive feedback or assistance. Last-minute pitches won’t receive this privilege. Sorry.

We were seeking funding that valued our company at US$10 Million dollars. We just received a commitment from an individual putting in another half a million dollars that is valuing our company at US$200 Million dollars. This increase is due solely to the amazing exposure we received and the people we met at The Perfect Pitch 2009.

- Dan Didrick
Winner of The Perfect Pitch 2009

Imagine being the winner of The Perfect Pitch 2010 and receive the funding you need to build your business empire. Don’t deny yourself the chance to experience that “pinch yourself moment”!

Learn more about the event and submit your pitch at the PerfectBusiness Summit 2010 website.

Image by Mykl Roventine

Got ambitions for high-payoff potentials? Allocate a portion of your investable capital to angel investing, a form of alternative investments that offer high risk, high return opportunities.

William S. Podd, executive director of Landmark Angels, suggests, “Angel investing, with its historical high risk/high reward strategy, can provide an opportunity for significant returns for high net worth investors as part of an asset allocation strategy.”

Amazon, Facebook, Google, Mint, PayPal, and Yahoo are just some of the high-profile companies that have made their angel investors very happy.

High Risks/High Returns

A study by Scott Shane, author of “Fool’s Gold?: The Truth Behind Angel Investing in America,” reveals that accredited angel investors see a negative return in 40% of their angel investments, and 7% of investments account for 75% of all returns.

Roughly speaking, out of 10 angel investments, 3 to 4 will fail, 4 to 5 will either do okay (generate some return) or will be “walking dead” (survive but generate little or no return and not dead enough to be a write-off), 1 or 2 will be home runs that make up for the losses and generate a handsome return to angel investors.

Brad Feld, managing director of Foundry Group, explains the concept of home runs:

Understand the difference between 0x and 100x: I’ve had two of my angel investments return over 100x each.

Since I had a strategy of investing the same amount in each company, all I needed was one 100x to allow me to have 99 companies completely flame out and return 0 and I’d still break even.

With two investments at over 100x, I now have a built in gain of significantly over 3x across all of my investments since I’m [sic] made about 75 of them and I’m now deliciously “playing with house money” on all of the rest.

Financial Returns: Angel Investments vs. Other Asset Classes

Few years ago, the Ewing Marion Kauffman Foundation and the Angel Capital Education Foundation conducted the largest study on the financial returns of angel investors in North America and released a report in 2007, showing that angel investors participating in organized angel groups achieved an average 27% internal rate of return (IRR) on their angel investments.

Overall, this set of angel investors affiliated with angel groups experienced exits that generated 2.6 times their invested capital in 3.5 years from investment to exit. This return compares favorably to that of other private equity investments, including those of early-stage venture capital. Seven percent of exits generated returns above 10 times their initial investment.

New Series: Asset Allocation Strategies for Angel Investors

You see, angel investing is a high-risk, high-payoff activity. To help investors tap into the potential lucrative returns without risking more than what they can stomach, we’ve prepared a new series on asset allocation strategies, which studies what veteran angel investors recommend in respect to personal asset allocation and effective portfolio building.

Next, Easiest Way to Determine How Much to Allocate to Angel Investing.

Don’t want to miss any articles in this series? Sign up for our weekly newsletter now!

* Venture Hype will never sell or share your email address. And you can unsubscribe anytime.

You’re destined to start your journey on angel investing!

Think about it. You invest your own money and report to no one but yourself.

Cut a check if you like; close the checkbook if you don’t.

You always have the final say ‘cos Golden Rule says “he who has the gold makes the rules.”

But with tons of other asset classes to choose from, what’s in it for you to angel invest?

Receive Firsthand Info

Unlike other forms of investments (e.g. investing in a fund or in the public market), direct angel investments give you the discretion to positively influence the outcome of your portfolio companies. You can leverage your network and expertise to help the startups. Simple. Direct. Effective.

Mike Volker, a Vancouver-based veteran angel investor, told The Globe and Mail:

“With larger companies you’re removed from the action, and you’re getting second-hand information, reading analysts’ reports and opinion letters,” he says. “Working with startups I’m basically an insider, although you can’t trade on that.”

And it sure as hell beats the odds of hitting the jackpot!

Make Money

Few years ago, the Ewing Marion Kauffman Foundation and the Angel Capital Education Foundation conducted the largest study on the financial returns of angel investors in North America and released a report in 2007, showing that angel investors participating in organized angel groups achieved an average 27% internal rate of return (IRR) on their angel investments.

Overall, this set of angel investors affiliated with angel groups experienced exits that generated 2.6 times their invested capital in 3.5 years from investment to exit. This return compares favorably to that of other private equity investments, including those of early-stage venture capital. Seven percent of exits generated returns above 10 times their initial investment.

But making money is just one aspect. There are much more to being an angel investor. Read on.

Get Involved With Dynamic Startups

Angel investing is exciting. Its high risk/high reward nature charges up certain macho type. If you’re like most angel investors, chances are that you’re or were an entrepreneur yourself. In this case, you can re-live the startup adventure without doing the hard work, as Dharmesh Shah, founder of HubSpot, puts it.

In this regard, we couldn’t have said it better than Will Herman, TechStars mentor and Boston angel investor:

I invest because I have a blast doing it. It’s about 75% of the fun of running the company yourself with only 5% of the stress.

Give Back

Or maybe, you’re truly enthusiastic about sharing your startup experience and/or giving back to the startup community.

Jason Calacanis, founder of Open Angel Forum, said:

When I was coming up as an entrepreneur I had to fight for everything I got and there was no clear roadmap of how to be successful. I’ve been more successful than I probably deserve, so I’ve been spending 10% of my time trying to give back to “the game.”

That’s why I started the TechCrunch50 conference with Mike [Arrington], that’s why I angel invest and it’s why I started This Week in Startups. I like to share what I, and others, have learned. I think entrepreneurship is a beautiful thing.

You bet entrepreneurship is a beautiful thing. It creates heaps of jobs and stimulates our beloved economy.

Get Good Will

And you get good rep. It’s the side-effect of helping the community. Shan avouches, “One of the side benefits of being an angel investor is that it builds credibility and good will within the local community.”

Learn New Things

Just because you’ve got some nice coins in your pocket doesn’t mean that you’re a Know-It-All, although some suck-ups might have you believe otherwise.

When you got skin in the game you’d suddenly pay much more attention to the invested domain. No matter how big an expert you already are in a given space, you’d pick up something new when your antennas are focusing on the beam.

“I learned as much from going into angel investing as I got out of my Sloan MBA,” Shan states.

Meet Great People

What’s more? Not only will you meet passionate entrepreneurs but you’ll also connect with other investors who’ve also invested in the deal. Their expertise and networks are something you might be able to tap into in the near future.

Big things happen when great people get together. This kind of instant connections isn’t something you can develop at run-of-the-mill networking events.

Herman admits that meeting people is one of his motives to becoming an angel investor: “I get to meet smart, energetic people with great visions and boundless energy. ”

Shan also makes no bones about how being an angel investor has put him in touch with brilliant people who he wouldn’t have gotten to know otherwise: “Angel investing has been very helpful getting me into the right groups of people, and that has helped me in my third startup [HubSpot].”

Stay In the Loop

Like many angel investors, Del.icio.us founder Joshua Schachter believes angel investing “pays vast dividends outside of dollars.” Schachter says that angel investing allows him to stay close to interesting projects and avoid getting bored. He adds, “I know about a lot of what’s going on in the Valley right now, for example.”

Now What?

Excited about the prospects and possibilities of what angel investing can bring? Sign up for our newsletter to receive tips, news, and insights (from the experts) on how to become a better angel investor now.