Apply to Birmingham Angel Network, LLC - Create Application

It's a new year and time to kick off a great new class of companies for 2011.

Birmingham Angel Network ("BAN") will be looking for a new high growth companies to work with at our next meeting on Thursday night (Jan. 27th).

If you or someone you know would be a great fit, please tell them to submit an application before Thursday or it will be another 3 months before there is another opening. General criteria may be found at: BirminghAmangels.com/entrepreneurs.php

Submissions may be made online through AngelSoft at: Apply to Birmingham Angel Network, LLC - Create Application.







If you are a potential investor, Thursday is a great time to visit and check things out as well. RSVP at: http://ban012711.eventbrite.com/

Median exit price was up 70% to $46 million in 2010, but either way the math still works.

"The $46 million median amount paid for a venture-backed company in 2010 was 70% more than the $27 million median in 2009."Exits and amount up in 2010 by Dow Jones Venture Source

Thankfully those numbers are still in line with the the $30 million average successful exit planning assumption we have been using in our portfolio pro formas. (See the Nov. 22 blog post for more detail)

Of course, we would all be even happier if a non-typical paypal/google type 1000x slipped in there too.

LegalZoom.com Accused of Unauthorized Practice of Law and Privacy Violations

Legal Zoom (legalzoom.com) is accused of the unauthorized practice of law, as well as disclosing to third parties customers' private information:

LegalZoom and Washington State Reach Agreement Over Unauthorized Practice of Law, IP Watchdog

[T]he most egregious charge leveled against LegalZoom is that they sold, transfered or otherwise disclosed consumer information to third parties. So not only was LegalZoom offering to provide legal services to individuals without a legal license but they seem to have been collecting private information and giving away sensitive, personally identifying information such as financial information, information relating to real or personal property and information relating to family relationships. This screams for further investigation by other State Attorneys General and the United States Patent and Trademark Office. Not only does LegalZoom’s advertising lull unsuspecting consumers to believe they are being represented, but what LegalZoom learns during such representation is given away to third parties? If an attorney did that they would lose their license.

Entrepreneurship and Taxes (link)

Scott does a good job of not just stating his opinion, but also attempting to make sure that his opinion has a basis in verifiable fact and he has some great points about our current Congressional decisions on the Bush era tax cuts.

Entrepreneurship and Taxes by Scott Shane

"The United States has an enormous budget deficit, which may require tax increases to close the gap. But we need to carefully consider the law of unintended consequences when raising taxes. Much evidence shows that higher taxes discourage entrepreneurial activity, including investment and hiring by small business owners. If we let the Bush tax cuts expire, we risk shutting off already weak small business hiring and investment. Is that possibility really worth the relatively small reduction to the deficit that we might derive from a tax increase?"

As an aside, Scott also has a good book out on angel investing too...think Freakonomics for angel investors. Of course, my favorite quote being:

"Particularly promising are angel groups, which pool knowledge and money for wiser and more productive investments. In groups, angels can rely on each other's expertise, share the labor of performing due diligence, and generally insure that their money is being placed--and used--wisely. Fostering the formation of such groups may be the single most important thing that government can do to boost angel investing."

Angel Investing: Do good by doing well (WTN News)

An article worth reading:

Angel Investing: Do good by doing well (WTN News): "But the giving back is not about lowering investment standards, it’s about providing more active assistance than most VCs can provide in terms of helping entrepreneurs meet those standards. It’s about working with entrepreneurs that combine world-class ideas with the rough edges typical of high impact entrepreneurs that are new to the game and/or otherwise do not have the polish and experience – yet – to pass muster with more seasoned professional investors."

And I would go one step farther...good angel investing is not just about overlooking rough edges, but instead it is about taking well thought out and calculated risks at a very early stage in the life cycle of a high growth business, thus there are apt to be more rough edges in a typical deal than in deals done by later stage investors.

The simple economics look like this:

1. "Successful" deal(s) return 30x or more of investment (e.g. $100k investment equals $3mm or more on exit);

2. Approx 1 in 10 deals are successful *;

3. Approx. 50% return less than the investment*;

4. Average hold period for a successful exit is approx. 6 years*; thus

5. Average IRR of angel deals is approx. 27%*.

Nonetheless, despite the lofty economic motives there is significant "goodwill" (founders, community, employees, etc.) because many of those companies simply would not exist without the investment and support of early stage angel investors.

*(Numbers based on national averages included in a number of different studies. See Marion Kaufman Foundation for just a few.)

Don't mind the media, southern angel investors still wanted!!! *a southern view of a west coast commentary

Mark Suster (generally, one of my favorite writers about angel/VC investing) wrote an article yesterday called "Here's What Angel Investing And Florida Condos Have in Common" and made several points that I think are worth considering in a southeaster context.

His points were primarily:

• angel investing is currently a hot fad;
• there are too many startups being formed for the historical ratio to be successful;
• the VC market is overheated, so it is masking the problem of too many startups;
• we won't fully realize the bubble for another 5-6 years;
• angel investors, like other investors tend to pick poorly and buy high then sell low; and 
• if investors pick the right sectors there are still good startups available.

These are interesting for a number of reason, but mainly because of how west coast influenced they seem to be.

"Hot Fad" - Angel investing may be a hot fad in LA or Boston, but in the southeast angel investors are still few and far between and the resulting investment gap is large.  If you question that statement, then I would encourage you to ask your local VC groups because I bet they will tell you they are still searching hard for qualified deals and that they really don't have a good place to refer companies that are too early stage for their investment criteria.

"VC market overheated" - just a couple of weeks ago at the southeastern ACA meeting we heard over and over  again how difficult the current market is for raising a new venture fund.  Without new funds it is hard for a market to get overheated.  Also, the hot VC markets don't reach well into other geographies, so even if certain pockets are hot it still doesn't reach.  Brad Feld ( I think it was Brad) explained it well a month or so ago when he pointed out that because of limited time, he really had to spend his time looking at deals in his core travel routes.

"Bubble" - this point I agree with...at least to the extent that I agree that angel deals are no different than other businesses and need to be supported by solid economic fundamentals.  Thankfully, we are able to wait and pick through deals that don't seem to have solid fundamentals (i.e. actual sales and even profits...jaw dropping for west coast angels I know).

"Investors buy high and sell low" - this is a trait where I think southerners can claim some superiority in angel investing because southerners by nature are less prone to jump onto the bandwagon of the last hot trend.  Southerners are used to being considered uncool on a national basis and some even revel in it, so pragmatism is a bit more apt to rule the day.   **I realize the real estate boom hurt southerners too, but the desire to own land is a particularly southern weakness that I think overruled our otherwise general pragmatism.

"Certain sectors are still good" - I want to agree with this point, but I don't because it just sounds too much like the same fad based investing Mark was railing against in the article.  Instead, I will say that good businesses and good business opportunities can make for successful investments in any market. 

Overall, I will say that the southeast is still an undiscovered gem for many investors and that it is good business to be a part of companies that are growing and successful, which is exactly what our southern angels are seeking to do.

**If you want to see what I mean come check out a local ACA group meeting (BirminghamAngels.com) and I think you will find there is still plenty of room for good business people that have vision and practicality, both as entrepreneurs and investors.

BAN Meeting - Update

Just a quick update.

We (BAN) met last Thursday at Innovation Depot and had a packed house.  TransactionTree (www.transactiontree.com) presented for us and even gave a live demo of their e-receipt product using attendee information.

The portfolio company update was very upbeat since all the BAN companies are currently tracking well.  We even had a prior portfolio zombie that sprung back to life in a big way on Friday and that means we are back to batting 1000.

All in all, I couldn't be any prouder of the group and it's leaders for sticking it out through a tough economy and the results seems to be REALLY paying off.

Congrats to everyone and if you haven't made it to a meeting yet, check out the schedule (www.birminghamangels.com) and come visit!