Volume 3, Issue 7, August 21, 2010
August 3rd, PriceWaterhouseCoopers, Sydney: Sydney Angels launched the first Angel Group side-car fund in Australia. Working with Sydney Angels' major sponsor, PwC and the team from specialist early stage fund manager Proto Investment Partners, Sydney Angels have crafted an Early-Stage Venture Capital Limited Partnership to be a $10m Angel co-investment fund.
A side-car fund co-invests in deals that are prepared and invested by an Angel group.
Open to wholesale investors willing to contribute at least $100,000, the Fund will co-invest with Sydney Angels in deals that satisfy the triggers in the co-investment formula - essentially a minimum commitment from Sydney Angels of $50,000 and at least three members investing.
The Fund was unveiled to an audience of over 120 people in the Sydney offices of PwC. John Cannings, a senior partner of the PwC Legal Services practice, introduced the launch and the concept of a side-car fund. Next, Jordan Green, Deputy Chairman of the AAAI gave a brief overview of the Angel community in Australia, noted the involvement of AAAI directors in the leadership of the international Angel community, discussed the importance of syndication and co-investment, and then highlighted the success of side-car funds for Angel groups in the USA, UK and elsewhere.
Adrian Bunter, a Director at PwC, provided context for early-stage venture investment and the critical role Angel investors can play in creating a sustainable and effective ecosystem for profitable innovation. Adrian explained the benefits to investors of gathering together in groups and used the leading research from around the world to demonstrate the challenge and the value inherent in the side-car fund.
Steven Maarbani, Senior Associate and Funds Management Specialist with the PwC Legal Services practice, walked the room through the subtleties of the ESVCLP. Steven shared his command of the structure, the workings, the limitations and the benefits of this investment structure in a way that brought the whole room along with him.
Steven and Adrian told a story that highlighted the tax-free nature of returns to investors from a fund structured as an ESVCLP, while acknowledging the limitations and explaining how the structure of the Sydney Angels Side-Car Fund provides investors with tax-free returns from a well-diversified portfolio of Angel deals. Importantly, the fund represents a new asset class previously unavailable to investors.
Vivian Stewart, co-founder and Director of Sydney Angels, spoke about the genesis of the group and the outstanding support the group has received from its sponsors and partners, including PwC, ATPi and Proto Investment Partners. Vivian led the room through the disciplined and professional process and resources the group employs to source, evaluate, validate, invest, manage and exit Sydney Angels' investments. This well developed, carefully considered and properly resourced process will underpin the quality of the investments made by the Fund.
The formal portion of the evening finished on a high with the excitement of two entrepreneurs from the Sydney Angels portfolio telling their stories. Rebbekah Campbell of Posse and Daniel Noble of Drive My Car explained their businesses and praised the benefits already received from engaging with Sydney Angels.Many in the room expressed significant interest in the opportunity to gain passive exposure to a diverse range of high quality, risk managed investments in the emerging and exciting asset class of Angel investments. For more information, Sydney Angels.
Angel investors focus on capital efficient business models that can scale quickly, develop substantial strategic value and sell to larger players for better than ten times the valuation at the time of first investment.
It should be no surprise that the low cost, rapid development, highly scalable market for web applications and services continues to attract large proportions of new Angel investment.
This trend has brought a new bias in determining the potential for success of a business. The emphasis has shifted from the traditional focus on defensible IP (patents and the like) to a focus on defensible business models. Innovation has shifted from the product to the way in which the business conducts itself, connects to customers and suppliers and extracts revenue from its services.
The changing emphasis has given rise to a plethora of new business terms such as crowd sourcing, viral marketing, blogging, micro-payment, web communities, user generated content and new meaning to common words such as follower, fan, tweet, my and social networks.
Gone are the dotcom days when gathering eyeballs was enough to measure success. Sound old hat?
Okay, gone are the days when creating a social network was enough to mean success. Better?
Today's entrepreneurs and tomorrow's success stories are delivering valued benefits and financial outcomes for suppliers and customers (perhaps more recognisable today as partners and users). This means that few web, or mobile-based businesses can get a credible hearing from investors if the primary revenue stream is advertising - unless of course the service they are providing is an advertising service such as some form of classified marketplace, e.g. jobs/Seek, cars/NewCarSales, rooms/Wotif.
Subscriptions are a common theme for base revenue but, added value services are usually where the business can access fatter margins and scalable profit, e.g. buying furniture, spells, weapons, or potions in massively multiplayer virtual worlds. The freemium model of free entry-level access and a McDonald's up-sell to premium services still has legs. However, acceptance for a user pays ethic, even at the entry level, is growing as the baby boomers who gave birth to the democratic Internet give way to the Gen Y consumers of micro-purchases on the mobile web.
The most exciting opportunities are those where the business model uses the evolving medium of the ubiquitous, always on network to empower new levels of choice for consumers, to create new types of products and services for sale by vendors and to manifest new economic rents in the supply chains they construct, e.g. DriveMyCar.
Every Angel should continue to diversify his or her investment portfolio and many of the established business models and opportunities still have lots of potential for phenomenal exits. However, you might want to think again about what the world will look like in five to ten years when you certainly won't represent the typical customer. Open your mind to what might be possible and, whether we like it or not, accept that American style consumerism is the growing habit of our children all over the world.Perhaps your next investment will be in a business that provides a service you will never buy, reaching its customers through a channel in which you will never participate, for a benefit in which you see no value. Yet, that business can create value that a larger company like Google will buy at a premium just like Intel buys chip designs, CISCO buys communications technology and Microsoft buys software solutions.
Are you actively engaged in building networks in China?
Do you want to develop Angel connections, manufacturing leads, development partners in China?
You might to explore a new networking service that emulates LinkedIn but, has a China-centric focus - Ushi.
The site introduces itself thus:
Ushi is a private and invitation-only business social networking platform connecting China's influential professionals and entrepreneurs via mobile phones and PCs. Ushi makes it easier to find new customers, partners, employees, jobs and experts. Ushi was established by 100 business leaders in China.
Of course, much of the content is in Chinese and you may not yet have mastered reading Chinese. Don't let that stop you. With tools like Google Translate, a free plug-in for the Chrome browser, you can quickly read the web site content in English, or your preferred language. There may still be communication challenges if you can't write Chinese messages to your Ushi contacts but, many of the internationally oriented Chinese businesses have foreign language skills in-house. Perhaps you can write Chinese messages, or at least want to be courteous by initiating with a Chinese message (helped by local Chinese speaking colleague) but, you don't have a Chinese keyboard. There are free services like the Gate2Home onscreen keyboard which will help you solve this dilemma, or follow the instructions on eHow to use your regular QWERTY keyboard.
Why is this interesting for Angels?
If you are investing in physical products, chances are that there will be some China-based manufacturing involved. Don't leave yourself at the mercy of the entrepreneur, or worse, the entrepreneur's advisers when it comes to building valuable networks in the world's largest manufacturing base. As Angels, we seek to help and mentor our portfolio entrepreneurs and that means we need our own experience, our own networks and those need to be current.
If you are investing in web products and other software, chances are that China will represent a substantial growth market. If you don't help your companies enter that market, then you can be sure that an eager Chinese entrepreneur will eat your breakfast as Baidu did for Google, Alibaba did for eBay and Ushi might be doing to LinkedIn.
If you are interested in the emerging trend of cross-border Angel syndication, you could do a lot worse than tapping in to the large, growing and valuable network of Angels in China. Formally represented by the China Business Angel Association, Angels in China, like every other country, are predominantly private individuals and hard to find. There are a small number of Angel groups, like Angels Shanghai and the Shanghai Angels, which are organised in familiar ways. However, a burgeoning generation of successful entrepreneurs are actively engaged in investing in the next generation of start-ups and will give rise to a strong Angel story in the years to come.
This has been the pervasive question for most of the last few years. It has been of less concern to Australian Angels who have never had the habit of expecting domestic VC investment to follow-on in their portfolio companies. However, for Angels in the USA there was a long-standing expectation of VC support of Angel-backed deals, at least in the VC centres like California, New York, Boston and Texas.
Among Angels in the USA, the last few years have seen a rapid decline in VC support for Angel portfolio companies. That, in turn, has created the need to adapt to a new world order in which Angels seek investment opportunities that won't rely on multimillion-dollar follow-on investments from VC. This new paradigm has been a constant topic of discussion and debate among Angels in North America as they watch the depravations faced by their VC colleagues.
Far from an isolated case, similar stresses on early-stage funding are evident in the UK where a recent report by the City of London notes a reduction in the supply of early stage venture capital funds (£2m to £10m). This has led to entrepreneurs becoming more reliant on Angels to meet their equity finance needs. Further, the investment relationship between Angels and VC is increasingly disconnected and British Angels now tend to fund portfolio companies through to exit, rather than seeking follow-on VC investment, or a market listing.
The depth of the market in the USA has allowed a new generation of early-stage VC firms to arise and prosper, even in this difficult fund raising climate. Smaller funds of $30-40m have emerged with a strong back to basics approach applied to the evolving Internet, Digital, Software and Cleantech markets. Spread more widely around the country and drawing on 21st century business models these VC firms are co-investing alongside Angels with a very similar focus on capital efficient businesses and trade sale exits to replace the more traditional, capital-intensive road to IPO.
While the jury is still out on the Australian VC scene ever succeeding, there are signs that the USA VC community may actually be recovering to some degree. A recent survey of 126 Silicon Valley VC deals by USA law firm Fenwick & West has marked the persistent rise of key indicators. In the April to June quarter, up rounds represented 55% of the deals with flat rounds at 18% but, that still leaves 27% of deals being down rounds. The trend is in the right direction, just try not to be in the more than a quarter of all deals that are feeling the pain.
The Cleantech and Internet/Digital Media sectors are showing the strongest growth which is consistent with the investment sentiment of Australian Angels. After years of strong performance, the Life Sciences sector is taking longer to recover. Software continues to be a favoured sector but hardware is struggling to regain its lustre.In the Angel world there has been a growth of side-car and co-investment funds (see news on Sydney Angels side-car fund in this issue) that are emerging as a way to obviate the need for the deep pocket VC investor. In the USA and Europe national, state and even city governments are supporting these funds with investment dollars, administrative support and tax incentives. Leading the way are innovative governments such as the State of Ohio which issued more than USD30m in Technology Investment Tax Credits to active Angel investors in the last several years. The best example in Australia is Playford Capital, a VC seed fund established by the South Australian government to invest in South Australian entrepreneurs. Playford routinely co-invests with Angels and uses its well-funded management team to help portfolio companies reach high value exits.
One of the surest and quickest ways to improve your public speaking, and the effectiveness of your pitches, is to be very clear about your point.
No doubt you've had the experience of listening to someone speak and speak and speak and wonder to yourself in the thought bubble that no one sees: What the hell are you talking about? We don't want people to think that about us. We want to have a clear, succinct, well-developed point, one that is relevant and meaningful to our audience.
When we don't know our point, we ramble. Rambling is the curse of the busy, unfocused, unprepared mind. Rambling means to speak without knowing what you are saying or why you are saying it. Rambling will cause the connection between speaker and audience to disconnect faster than a speeding bullet! Rambling is so common that we don't even know we, and others, ramble almost constantly, and we ramble because we do not take the time to clarify our main point.
Here is an excerpt from the RealTime Speaking "Speak for Effect!" workshop notebook. I submit it to you for the sake of your continuous improvement in public speaking. It is the fourth of The Five Ps; the other four I'll cover in subsequent tips.
Information fatigue syndrome, data smog, Attention Deficit Disorder, exponential change - today, these concepts are realities that partly create the context in which we speak.
How do we break through the overload? How do we make our message meaningful and important so we become what people remember: in five minutes, tomorrow, next week?
Have a Point, and keep it simple, relevant, and useful.
Whether speaking with one person, a dozen, or one thousand; whether informally speaking with friends, pitching your product to a prospective customer, or delivering a keynote - you must have an essential Point.
It is a beautiful, wonderful, exhilarating experience to speak with a precise Point in mind, and to listen to the same! Your essential Point is the one thing you want your audience to hear and remember, even if they get lost in space on everything else. It doesn't matter what we say; it matters what they remember!
If you only had five seconds to speak, what would you say? What is your Point?
Practice this little exercise for all communications situations, to develop the habit of knowing what your essential Point is. Start with this question, "What is your presentation about?"; then answer this question in one paragraph, then one sentence, then one phrase, then one word.
Practice paring your pitch to the minimum, for the sake of clarity and brevity - and then say only what is necessary and sufficient to create the effect you want. Less is often more.
Remember: YOU are the message!_____________________________
Robert Rabbin's motto is Have Mouth, Will Travel. During the past 25 years, Robert has created an international reputation as a skilled and inspirational keynote speaker, leadership adviser, and self-awareness teacher. Robert is also a respected public speaking guru and communication strategist who is the creator and managing director of RealTime Speaking, a dynamic style of public speaking and communicating based on integrity, vulnerability, and authentic connection.
For further information about Robert and his work, please visit his website.
Become part of the Australian Association of Angel Investors.