An Angel Group is an organized group of angel investors who find, research and invest in startup companies.
+ Annual membership fees for a typical angel group is around $3,000 -$5,000.
+ The average check an investor in an angel group writes is $25K-$50K per investment.
+ Many groups require members volunteer their time on a regular basis to help with group activities, deal flow screening and performing Due Diligence.
Cap (On A Convertible Note)
The cap on a convertible note sets a maximum valuation amount at which an investment made can convert into equity. Typically investors get the lesser of the next qualified pricing round.
As an example: If the cap on a convertible note is $7 million and the next round is priced at a pre-money valuation of $10 million, the convertible note will convert into equity at $7 million. If the cap on the convertible note is $7 million and the next round is priced at $5 million, the convertible note will convert at $5 million.
A cap, or capitalization table is an analysis of the founder's and investor's percentage of ownership, equity dilution and equity value in each round of investment.
Common stock is a type of security that represents an ownership stake in a company. In certain circumstances, common stockholders have the ability to vote on company policies and elect members for the board of directors.
Convertible notes are often offered to investors by startups who wish to raise funding without establishing a specific valuation for their company.
Convertible notes are structured as loans at the time an investor makes an investment. The outstanding balance on the loan is converted into equity shares once the company is valuated during a Series A Valuation round.
The Angel Capital Association (ACA) defines due diligence in the venture industry as the investigation and analysis an investor performs to see if an investment opportunity meets the investor’s criteria for funding. For angels’ as well as VCs’, the primary objective of due diligence is to mitigate investment risk by gaining an understanding of a company and its market as well as determining the suitability of the investment for the portfolio.
DreamFunded follows the ACA's strict due diligence guidelines and standards. Click Here to view the ACA Guidelines for Due Diligence
Discount (On a Convertible Note)
A discount on a note sets a percentage reduction at which the convertible note will convert relative to the next qualified priced round. Effectively this permits an investor to convert the principal amount of their loan (plus any accrued interest) into shares of stock at a discount to the purchase price paid by investors in that round. Discounts range from 0% to as high as 35%, with 20% being common.
Interest (In a Convertible Note)
A convertible note acts as a loan from an investor to a startup company until the note converts to equity at a later date. There is an interest rate on the loan which is paid back at the end of the specified loan period. The loan amount plus the accrued interest will convert into equity when the company is valuated.
A class of equity ownership in a company that has a preferential claim on assets and earnings over that of common stock. All preferred stock converts into common stock when a private company goes public during and IPO.
Pro-Rata Investment Rights
Pro-Rata investment rights give investors the right to participate in the subsequent funding round to retain their original ownership percentage in the company and avoid equity dilution.
SEC (Securities and Exchange Commission)
The Securities and Exchange Commission is the governing body responsible for creating and enforcing securities laws in the United States of America.
The seed round is typically a startup company's first round of funding and comes before the company has a valuation. Typically, startups in Silicon Valley use a convertible note to raise money from investors in their seed round. The convertible note then converts to equity during a subsequent Series A valuation round.
A subscription agreement is a document that is included in subscription agreement packages and is an application that an investor fills out to join an investment partnership or fund. The terms of the investment such as price and timing of the investment are outlined in the subscription agreement and are agreed upon between the buyer (investor) and seller (issuer / fund).
A valuation is essentially the value of a company at any given stage of funding. It is the price at which the company should be able to be sold for on the market. From a startup perspective, it determines the amount of money the founder will receive from an investor and what equity percentage they must give up in return.
Venture Capital Firm
Also known as a VC firm, a Venture Capital Firm is comprised of a group of Limited Partners (investors) who pool money together to invest into private companies. The limited partners (LPs) are represented byb the General Partner (GP), who makes the investment decisions, represents the interest of the LPs, and manages the fund.
A screening process that an investor (usually angel group or VC firm) goes through to determine whether or not a startup has what it takes to become successful and profitable.
There is no formula to determine whether a startup company will ultimately be successful or not, but, proper vetting and due diligence is crucial when making informed investment decisions.
Vetting is measured by hours of due diligence performed on a startup company.
DreamFunded follows the strict vetting and due diligence best practice guidelines set by the Angel Capital Association (ACA).
Click Here to view the ACA Best Practice Guidelines