Articles by Bill Payne

Follow-on Funding: A Dilemma for Angel Investors

In 2007, Professor Rob Wiltbank reported in Returns to Angel Investors in Groups that angel investors made follow-on investment in about 30% of their invested companies. It was surprising for me to learn that follow-on investments correlated with lower returns, that is, angels that made follow-on angel investments saw returns of 1.4X their investment, while those that did not make follow-on investments enjoyed 3.6X returns.  The time to exit for both groups was similar. Read more

Bill Payne , Angel Investor , Frontier Angel Fund
January 31st, 2012

Average Round Size in Angel Deals

The Center for Venture Research at the University of New Hampshire has been publishing statistics on angel investing for decades.  Over the past several years, the numbers of US companies funded by angel investors has increased from about 50,000 per year to over 60,000 annually.  Mark Boslet of senior editor with Venture Capital Journal posted the following chart on peHUB, based on CVR reports.  As you can see, in the past eight years, the average angel round has decreased from nearly $500,000 to under $350,000. Read more

Bill Payne , Angel Investor , Frontier Angel Fund
January 26th, 2012

IP & crowdfunding: are 1,000 NDAs better than none?

Angels and venture capitalists will not sign non-disclosure (confidentiality) agreements just to listen to an entrepreneur’s funding presentation, or even to read the entrepreneur’s business plan.  Serial entrepreneurs understand this and write their plans without describing the “secret sauce.”  Investors will eventually want to validate the intellectual property (IP) prior to investing, but not just to hear about the opportunity.  After hearing an interesting presentation, these professional investors will engage with the entrepreneur in a process called “due diligence,” an exhaustive review of the business plan.  During this phase of the investment process, representatives of the investor group may agree to a non-disclosure agreement as part of their validation of the IP. Read more

Bill Payne , Angel Investor , Frontier Angel Fund
January 18th, 2012

A Bubble for Seed Stage Valuation

When entrepreneurs raise equity capital for startup companies, the investors’ percentage of ownership is determined by the negotiated valuation for the company at the time of investment.  For example, if the negotiated pre-money valuation is $1.5 million and the investors provide $500,000 in equity investment, the investors are purchasing 25% of the company [$0.5 million ÷ ($1.5 million + $0.5 million)].  And, as you might expect, when the company grows and meets important milestones (granted patent, first revenues, etc.), the valuation of the company increases.  If investors fund the company at a later stage, after the company has met important milestones, the investors’ $0.5 million in capital will purchase less of the company.  Not surprisingly, entrepreneurs are generally encouraged to postpone fundraising until critical milestones have been met, so entrepreneurs can sell less of their company to raise a given amount of capital. Read more

Bill Payne , Angel Investor , Frontier Angel Fund
January 10th, 2012

Limiting the Number of Shareholders in Private Companies

The U.S. Securities Exchange Act of 1934, section 12(g), generally limits a privately held company to fewer than 500 shareholders. The assumption has been that companies with 500 investors are quasi-public anyway, and for disclosure and other reasons should be forced to go public when the shareholder number approaches this limit. Read more

Bill Payne , Angel Investor , Frontier Angel Fund
January 5th, 2012