..to the San Diego Tech Coast Angels

Charles Mathews

Founding Member and Past President,San Diego Tech Coast Angels

Member of the Board of Governors,Tech Coast Angels

WelcomeWelcome

San Diego Tech Coast AngelsSan Diego Tech Coast Angels• Originated in 1997

– San Diego Band of Angels• Same time as first local VC fund

– Informal networking group• Few group deals

– Small “invest-with” groups– No structured process nor membership commitment

• Joined Tech Coast Angels in 2000– Grouping of Angel networks– Structured process with website– Membership commitment– Focus of Southern California not San Diego

Tech Coast AngelsTech Coast Angels• Started in 1997• Over 250 Individual Investors

– 4 Networks• Westlake/Santa Barbara - 35• Los Angeles - 80• Orange County - 75• San Diego - 60

• Research Collectively• Invest Individually Los

AngelesOrange CountySan Diego

Westlake/ Santa Barbara

Some perspective on TCASome perspective on TCA• Since 1997 invested

– About $80 million of members money– In >110 early stage companies

• Companies have raised additional $600 million

• Typical investment– $250K – $1.25M– Pre Money Typically $1-5M

• We really don’t care about “Control”

– Series A Preferred Stock• Over 25% of all Southern California

early-stage deals in in recent years

15 Maryland Technology Development Corporation

Columbia, MD

12 Draper Fisher Jurvetson Menlo Park, CA

12 Ignition Partners Bellevue, WA

11 Austin Ventures Austin, TX

9 Mobius Venture Capital Palo Alto, CA

9 Versant Ventures Menlo Park, CA

8 Arch Venture Partners Chicago, IL

8 Enterprise Partners Venture Capital La Jolla, CA

8 MPM Capital Boston, MA

8 Tech Coast Angels Laguna Hills, CA

8 Venrock Associates New York City, NY

No. Deals in 2004*   Venture Capital Organization   Location

SOURCE: "MoneyTree Survey" -PWC, Thomson Venture Economics and the National Venture Capital Association

•Rankings based on the number of first-time funding to companies in the startup and •early stages of development stages in calendar year 2004

TCA :: Who we areTCA :: Who we are• Majority are retired entrepreneurs• Over 1/3 have been a CEO• Wide range of industry experience• Wide range of motivations

– Giving back more than dollars– Being involved but not committed

• Wide range of interests– High technology– Lower technology or no direct technology– Life sciences

TCA :: comprised of individualsTCA :: comprised of individuals• Cooperating on deals

– Invest individually :: not a club nor a fund

• Committed to a disciplined process– As rigorous as any VC– Web enabled www.techcoastangels.com

• Paying an annual fee for services (no override)

– Support administration (1 administrator per Network)– Meeting costs

• Not charging companies for access• Having a commitment and fun

– $50,000 minimum investment per year– Attend majority of meetings and work on deals– $1,300 - $1,500 annual dues

The TCA ProcessThe TCA ProcessPipeline

www.techcoastangels.com

Application

~ 350 / Year• A few local members look

over the application, talk with the company

• Do we bring this deal before the TCA membership?

Pre ScreeningThe TCA processThe TCA process

~ 100 / Year• Fixed meetings 3-4 weeks• Company Presents to 20-30

Investors• Is there a Due Diligence Team?

ScreeningThe TCA processThe TCA process

Due DiligenceThe TCA processThe TCA process

~ 50 / Year Team 4-6 MembersElapsed time 4-8 weeksWhat are the knowable and unknowable risks?

Dinner Presentation

Fixed monthly meetings

In order to present at a dinner at least 2 members of the due diligence team must be ready to write checks

The TCA processThe TCA process

~ 15-20 a year

Funding

•About 7% of raw deal flow•Typical round is ~$500K

–Range is $250K - $1.25M–From 2 to 40 investors

•Typical follow-on is ~ $300K

The TCA ProcessThe TCA Process

~ 10-20 a year

$

SDTCA Investment historySDTCA Investment history

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TCA Investment historyTCA Investment history

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USA$ billion $ million % USA $ million % USA $ million % USA

1995 7.70 530 6.9% 310 4.0% 17 0.2%1996 11.60 590 5.1% 520 4.5% 11 0.1%1997 15.60 790 5.1% 560 3.6% 3 0.0%1998 21.60 1,400 6.5% 630 2.9% 28 0.1%1999 55.10 3,700 6.7% 1,400 2.5% 8 0.0%2000 106.60 6,340 5.9% 7,000 6.6% 77 0.1%2001 41.30 1,900 4.6% 1,550 3.8% 59 0.1%2002 21.20 1,220 5.8% 1,090 5.1% 12 0.1%2003 18.19 980 5.4% 710 3.9% 201 1.1%2004 20.94 980 4.7% 1,210 5.8% - 0.0%2005 21.68 1,480 6.8% 1,030 4.8% 6 0.0%

TOTALs 341.51 19,910 5.8% 16,010 4.7% 422 0.1%

LA/OC San Diego Nebraska

Source: PricewaterhouseCoopers MoneyTree and Kauffman Foundation

VC Investments in dollarsVC Investments in dollars

USADeals Deals % USA Deals % USA Deals % USA

1995 1,773 89 5.0% 67 3.8% 2 0.1%1996 1,821 119 6.5% 99 5.4% 5 0.3%1997 3,084 152 4.9% 904 29.3% 2 0.1%1998 3,553 208 5.9% 102 2.9% 3 0.1%1999 5,396 326 6.0% 142 2.6% 2 0.0%2000 7,809 496 6.4% 216 2.8% 5 0.1%2001 4,456 247 5.5% 151 3.4% 7 0.2%2002 3,057 146 4.8% 109 3.6% 3 0.1%2003 2,865 142 5.0% 113 3.9% 2 0.1%2004 2,966 138 4.7% 122 4.1% - 0.0%2005 2,939 176 6.0% 120 4.1% 1 0.0%

TOTALs 39,719 2,239 5.6% 2,145 5.4% 32 0.1%

LA/OC San Diego Nebraska

Source: PricewaterhouseCoopers MoneyTree and Kauffman Foundation

VC Investments in dealsVC Investments in deals

Deals $ million Deals $ million Deals $ million1995 35 119 1996 42 130 1997 51 95 6 7.5 12% 8%1998 64 195 12 12.5 19% 6%1999 53 210 15 15.0 28% 7%2000 54 183 14 12.0 26% 7%2001 19 65 8 6.5 42% 10%2002 10 13 11 4.0 110% 31%2003 13 25 11 4.5 85% 18%2004 14 23 12 6.0 86% 26%2005 13 17 22 12.5 169% 74%

TOTALs 368 1,075 111 81 30% 7%

Los Angeles, Orange County and San DiegoStartup and Seed Round Capital InvestmentsVCs TCA TCA versus VCs

Source: PricewaterhouseCoopers MoneyTree and Kauffman Foundation

VC Investments in VC Investments in early stageearly stage dealsdeals

TCA and VC early stage investingTCA and VC early stage investing

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1997 1998 1999 2000 20012002 2003 2004 2005

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Deals Venture Capital Deals TCA $ Millions TCA

– VC early stage investing has fallen dramatically– Number of angel and VC early stage deals about equal– VC angel early stage deals about– Angel investing dollars recovered

VC data for Southern California

Compared to TCA data

Investors need angels to get to prime timeInvestors need angels to get to prime timeN

um

ber

of

Investo

rs

$5 million $10 million

Angels

VCs

GAP

“How do I get across that

gap?”

Getting to prime timeGetting to prime time

• Presentation :: Presentation :: Presentation– Content needed

• Sequence of presentations• Elevator Pitch :: Executive Summary :: Business Plan• Due diligence book :: Company documents :: Deal docs• Talk to investors, not customers (or fellow scientists)

• Focus on what is key• Validated market need• Value proposition for customers and investors• Market niche, channel(s) and competition• What is the sustainable competitive advantage• Who is management and why is it credible• Deal details (money in, use of funds, pre-money)

SD TCA :: nuts and boltsSD TCA :: nuts and bolts• California mutual benefit corporation

– Not the same as an IRS not for profit

• Members subscribe to code of conduct– Annual membership renewed by invitation– Volunteer leadership

• Resources and knowledge pooled– Website is the communications glue

• Disciplined process– Prospects progress through a series of meetings

scheduled way in advance– DD leads must invest for deal to be offered to

members

• All investments by individual members

SD TCA :: washers and cotter pinsSD TCA :: washers and cotter pins

• Administration by Connect• Connect is UCSD affiliated• Connect focused on entrepreneurial

networking

• Meeting frequency– Monthly dinner meetings– Screen meetings every 3 or 4 weeks– Typical deal cycle is 6 to 12 weeks

• Web site enabled and driven– www.techcoastangels.com– From application to deal documents– Standard templates

• Introductory and advanced training

Proactive OutreachProactive Outreach• To develop high quality deal flow and

mutual support• Venture Capital Affiliates :: 25

– Co- and follow-on investment opportunities

• Network Sponsors– Fee-paying service providers as resources

• “Meet the Angel” programs• “Business Plan” competitions• Professional associations

– MIT Alumni, WITI, etc.

Pros & Cons of TCA structurePros & Cons of TCA structure• Simple legal structure

– Mutual Benefit Corporation (SD)– Not for profit (LA OC)

• Organization has no fiduciary responsibility

• Minimum annual fees and no carry

• Typical $500,00 investment needs 20 out of 250 to commit

• Self control of diversification– None or a great deal

• Space-knowledgeable Members screen and DD the deals– Separate Life and Si sciences

• Networks manage the activities

• ROMACs apply to all Members– Difficult to discipline Members

who do not comply• No fall back except trust of

others • Volunteer effort needed as

there is little overhead– Drives fee level

• Investors need to agree on terms pre and post investment

• Sharing of information is built on two-way trust– First hand experience of

others

Forming an Angel GroupForming an Angel Group• What is the investment vehicle

– Individual, club, fund

• Who is going to do what– Volunteers, hired hands, a mix– Who determines a deal is an investment

• How is the organization set up– Partnership, corporation– By laws and rules of conduct– Budget and source of operating expenses– Fees for applicants, affiliates and sponsors– Website

• Where is the investment focus– Deal flow from where

Thank you for listeningThank you for listening

Questions