| Arthur Lipper III | ||
Ask Arthur Lipper III™Managing and Funding Entrepreneurial Businesses |
 _______Ask Arthur Lipper III™ Why Plummeting Dollar Hurts YouInterview with Arthur LipperThe Fed and the federal government “are advocating and facilitating actions which will inevitably weaken the U.S. dollar for a long time to come,” says Arthur Lipper III of Del Mar, chairman of British Far East Holdings Ltd. and a veteran of Wall Street and international finance. Do you have a Question about Managing or Funding Entrepreneurial Businesses?Chairman British Far East Holdings Ltd.
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Question 1:
How important is an exit strategy to an angel? Bill Cate 25 Jun 1997
Eventually, angels want to convert their investment to cash. What strategies work best for private investors?
Lipper:
The difference between a professionally negotiated transaction and one done by an amateur is the attention paid to exiting.
The entrepreneur doesn't think about exiting as creation is his thing whereas the Angel is, by definition, but a transient investor. He/she is buying only with a view to selling.
This is not to say the Angel doesn't want to help the entrepreneur and otehrs by making an investment and usually it is necessary the Angel like the entrepreneur. Nevertheless, it is the prospect of exit which creates the wish to enter.
Question 2
How much equity does an angel expect for their money? Bill Cate 25 Jun 1997
I realize your answer would be based upon the financial condition of the company. Could you suggest a
range of equity vs investment for startups to profitable firms?
Lipper:
In start up situations the typical deal is one of the capital provider and entrepreneur splitting equally the equity. This is usually great for the entrepreneur but not so good for the Angel as the Angel is likely to be diluted as the comapny progresses whereas the reliance on the entrepreneur will usually allow him to maintain his position more effectively through the use of options.
I have always thought it would be fair for the capital provider to first own 80% and then award 30% to the entrepreneur on the achievement of the projections used to attract the capital in the first place.
I wish Angels would think in terms of capitalized market valuation of the business tehy are fiancing in determining what is fair. As with any security the investor should think in terms of his buying all of the company at the present market cap.
Question 3
What are the "hot" industries for angel investing? Bill Cate 25 Jun 1997
Where are the angels putting their money?
Lipper:
Internet, software and medical are two areas which continue to attract investment.
Restaurants are still the largest area for private company investment.
Question 4
Getting started in angel financing Blake Stephenson 26 Jun 1997
How do you get started into looking into angel financing? This question comes from a young guy (27) with
few contacts. Is looking at one of the different angel web sites one of the best ways to get started? If so,
which ones would you recommend?
Lipper:
Use all means of meeting those who have indicated an interest in investing. Web sites are fine, venture group
meetings are better. Your local Chamber of Commerce might help. Also the financial editor of local
publications can identify groups and individuals interested in investing in private companies.
Just remember that you only get one chance to make a first impression and be prepared with a well thought out and neatly presented business plan. If you can't do a business plan it is unlikely you will or should get financed.
Question 5
Getting an Angel's interest in your venture Blake Stephenson 26 Jun 1997
2. What would be the bare minimum be for an angel to be interested in a new business? For example, could the business just be a concept written up by a young guy who doesn't have the experience to write up a professional business plan and who doesn't have the requisite contacts to even get minimal seed money (i.e. $50,000) or to get some key personnel to help him out?
Or is there no real minimum? Does it all depend upon the Angel or group of Angels and thus the issue is more one of finding the right Angel?
Lipper:
The entrepreneur is assuming a substantial responsibility for the capital of the Angel. Without experience and
education the likelihood of success is remote.
You should consider becoming involved with someone of experience and perhaps make contact with the Small Business Administration office nearest to you as they can help with written material and also introductions. The SBA also sponsors a consulting service for entrepreneurs which could be very useful to you.
Question 6
Web-based delivery of higher education Alex Kugushev, CyberGnostics, Inc. 26 Jun 1997
CyberGnostics is a start-up seeking investors to develop a series of academic courses delivered on-line.
The computer is causing academic subject matter to evolve - from being lecture-based, to acquiring
knowledge and understanding by activity, discovery and experimentation. Our first product is an
introductory Statistics course (over 1,000,000 students a year). We would be happy to hear from investors
who are committed to modern views of education.
Lipper:
Having been involved in Computer Assisted Instruction since the days of PLATO and WICAT I know first
hand of the difficulty in making money from education if the sale is to a Board of Education or institution.
As a business I would only be interested in projects which had a retail distribution.
There are lots and lots of entrepreneurs out there who recognize the value of CAI but almost none who have ever earned profit from their vision.
Question 7
What is the minimum data required about a deal to attract Angels? dheilly@babson.edu 26 Jun 1997
We want to offer deal-flow information online. Our goal is to to make it easy for investors to determine interest, while making it simple for entrepreneurs to offer deals. These two goals seem opposed: entrepreneurs don't want to spend time composing prospecti, and Angels won't respond to anonymous, unqualified phone numbers.
This is not an idle inquiry. We hope to launch this service in August or September at http://bean.babson.edu in the Marketspace section. We have a rough prototype now focused on business opportunities, but are in the process of redefining search criteria. Any suggestions will be appreciated.
Lipper:
The Form U-7 simplified prospectus should be the minimum amount of data provided.
I also suggest it would be refreshing for an entrepreneur to present a professionally drawn background and credit report on himself.
Angels buy people and they should be able to know what they are buying.
Question 8
VC or Angel Funding ? Uday Kumar 26 Jun 1997
My start-up is scheduled to preview release an exciting web-based transactive application next month. I hope to raise a total of $8 Mil in two stages, the first round being $2 Mil. Is Angel funding right for first stage ? If so, how can I locate individual Angels in the Silicon Valley (not Groups of Angels) ?. TIA,
Lipper:
Suggest you contact Silicon Valley Bank and/or Michael J. Danaher, Esq. Wilson Sonsini Goodrich &
Rosati mdanaher@wsgr.com 650 Page Mill Road 415) 493 9300 Palo Alto, CA 94304-1050 Fax: 493
6811 as both groups are so very well tied into the VC community.
Your thoughts...
Lipper:
Angels are amateur VCs and left to their own devices will usually lose more money than they will earn as they do not have the advantage of spread of risk by having a portfolio of investments.
The student should recognize that once he has successfully sought an investor that it is no longer "his" company as he is butone of the owners of the business. He can be the parent of the enterprise but never again the sole owner.
I believe that usually entrepreenurs are better advised to take VC money if they can get it than Angel finanicng as the VC is usually in a better positioin to assist the company after the investment is made.
Question 10
Distant Angels Ken Taylor 26 Jun 1997
I am currently working with a start up company in San Marcos, TX that offers an Internet based environmental compliance service to Fortune 1000 companies. Initial funding has been through a combination of capital sources(Founder Investment, a local angel, and a bank loan). The company currently needs 300-700K to fund the expansion of its marketing efforts. Obviously, angel(s) are a viable source for this type of funding. My questions are: - Are angels likely to consider investment in a company located in a distant location(ie - Texas vs. California)? - It is my understanding the ACE-Net is not yet functional. What are other options for locating potential angels. - Since we will need more than one angel, do you have an suggestions on how to structure the relationship between these angels?
Lipper:
Angels usually want to invest in companies located with a couple of hours drive. Many VCs also want to
focus on companies local to their location.
I am not a believer in the likely success of Angel-Net in creating a significant number of deals as the "pressing of flesh" and personal chemistry is such an important factor in the Angel's decision.
Fortunately in Texas there are a substantial number of VCs as well as the famous Texas spirit so it should not be the problem it could be in less aggressive states.
The Internet changes everything and through using the www distance can be overcome as almost all of the VCs have a web site and are thus approachable.
Question 11
How Band of Angels Operates Ry Smith 26 Jun 1997
Given the opportunity to network and post here we specialize in Int'l Joint Ventures and have a need for
private investment. We welcome projects and hope you'll review our current listings.
http://home.earthlink.net/~cmgilman/index.htm
I've enjoyed reading and participating and hope to develop my network further.
Thanks
Lipper:
The problem with a group of Angels from the perspective of protecting the capital of the group is one of
leadership dependance. Which Angel is going to bring a legal action to protect the other Angels?
The monitoring of investments is vital in private company investing and if the Angels are not prepared to become fully involved in protecting their capital they should investin publicly traded securities.
From the persepctive of the entrepreneur is is always better for there to be a group of Angels without a strong leader as there is no one party having the responsibility of watching the pot.
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