Chances are you won’t be going far, says Nicola Corzine of the Band of Angels, in explaining why out of 230 investments only 9 have exited. One reason is bad market timing. Get to know the Silicon Valley based angel group.
Hometown: Brighton, England
Current Residence: Foster City, CA
Occupation: Deal Manager and Partner for Band of Angels
Areas of Focus: All Areas of High Tech
What startup qualities, credentials or criteria make for an exemplary Band of Angels’ investment?
The Band of Angels has a track record of investing in deals for over 17 years that have strong teams, promising technology, big potential markets, solid barriers to entry, and great exit potential. Since we like to be the first money into the deal, we recognize that for seed-stage companies being certain that a company is all of these things is impossible—that is what makes investing at this stage risky. However, the more a company meets these qualifications, the more likely it will succeed in raising money from the Band.
What persuaded the Band to recently invest in Trustnode? Why the insurance technology?
Every once in a great while we’re fortunate to find great ideas in markets that have been neglected from a technological innovation perspective. Trustnode is a great example of a company that knew this sector from the ground up. The team had experienced this pain firsthand and built their solution with the customer in mind.
Their market is extremely large, and their rapid adoption by customers exemplifies how great a need the industry has for a product that can reach end users in an informative and scalable manner. The Band’s lead investor for the deal knew this space very well. At the same time, the group’s collective diligence led us to believe this was a great investment for the Band. Weare delighted to welcome Trustnode into our portfolio as one of our newest additions!
How does Obama’s health reform factor into insurance technology? Has it increased the proliferation of insurance technology startups? Are there any legislative challenges that lay ahead for the startup insurance technology?
Obama’s health reform impacts many areas for startups, not just those in the insurance industry. For example, the Band was a seed investor in Practice Fusion, the #1 electronic medical records provider in the United States. As a result of the passing of the American Reinvestment and Recovery Act (ARRA) on February 17, 2009, physicians and providers can qualify for $44,000 in Medicare incentives if they demonstrate “meaningful use” of an Electronic Health Record starting in 2011. Practice Fusion’s EHR is 100% free. There are no hidden charges, consultant fees, software costs or support subscriptions. This means that physicians and providers can adopt the Practice Fusion platform at no cost and still qualify for the $44,000 Medicare incentives – making their competitive advantage even stronger and ultimately ensuring that the company continues to see tremendous adoption and growth over the coming months and years.
Is the Band planning on investing in other healthcare or insurance technology in the near future?
Absolutely! The Band has already invested in three healthcare companies so far this year: OncoHealth – an impressive startup that has developed novel diagnostics for cervical cancer and other potentially deadly cancers caused by the human papillomavirus (HPV), TGS® Knee Innovations, the company that is selling an innovative knee replacement system that utilizes the patient’s unique knee motion to simplify the procedure and restore natural knee function, and Niveus Medical; a company that has developed a series of cost-effective technologies to keep key muscle groups strong during periods of sedation and bedrestin order to accelerate patient recovery in the ICU. We have several medical-device and healthcare startups that we’re currently evaluating and our interest in investing in this space remains strong.
What 5 questions will the Band ask the most to companies wanting to raise angel financing?
- What are the major milestones that you need to reach with this use of funding?
- What are the core strengths of your team that will enable you to stay ahead of known (or unknown) competition?
- Why will you win and how do you define a “win”?
- What else do you need from your investors besides capital?
- What are the biggest risks that you see with this idea?
Why are the odds of raising angel financing higher than raising venture capital?
Statistically there are more angel investors and more opportunities for companies to raise capital from angels than VCs. For example, in the first ½ of 2009, VCs invested $661M into 101 startup companies across the US ($6.5M/deal). During that same time period, 24,500 startups received $9.1B in funding from angels ($371K/deal). So rather than a one or other scenario, the question startups should ask when they consider going out to raise capital is “how much money do you really need and what type of investor do you want on your team at this stage?”
What percentage of the Band’s investment fail as startups? If the case, what are the main reasons for their failure?
Well, so far we have invested in 230 companies since our inception and 9 have gone public and more than 50 acquired for a gain. The current state of the public market is one example of the challenge of exiting in these times. But, to be fair, we’ve also seen our fair share of companies close down over the years. In most of these cases it’s not about doing the wrong thing per se – it’s about market timing, adoption, and a whole lot of luck!
How can the Band predict with confidence which of the startups will prove more successful than others?
It’s not really a formulaic decision, or a series of diligence responses that lead us to invest. At the end of the day, it’s about investing in people that you believe can achieve their visions and goals. All ideas that we invest in change along the way. It’s the people we invest in that are the constant.
If you believe in the team, most challenges can be worked around as they arise. We’re also extremely fortunate to have more than 130 high-net-worth people at the Band that bring a depth and wealth of experience to the forefront and help our startups succeed along the way.
One of the key criteria we have for applying to the Band is that each member must have successfully built or been a part of the executive team of a successful company in their career. This expertise, coupled with our members desire to provide active engagement with our portfolio, really gives a huge helping hand to the companies we invest in. Our goal is to try to help avoid some of the painful mistakes that we made along the way.
What distinguishes the Band of Angels from other angel groups or funds?
The Band has invested in more than 230 companies throughout the boom, the bust, and today. Consistently, the Band has helped young startups by providing them with their first investment of seed capital and, more importantly, expert advice. The Band provides its members enhanced deal flow, better due diligence, and the negotiating power of indirectly pooling capital. The group also provides a forum for fellowship among successful, like-minded people.
What do you wish startups better understood about angel investment?
• Angels are highly regional; they do not typically fund any deal outside of their specific region.
• Processes vary amongst groups but differ greatly from those employed by VCs:
– If you are invited to “present” to any angel group, assume that the initial presentation will be ‘fast & furious’. Angels like to get to the heart of the matter quickly!
– Once you’ve “passed” this stage, expect to go into much deeper discussions.
– Angels typically reach a “No” vote much quicker than VCs.
• Be prepared for a thorough due diligence review. The more prepared you are, the faster it will go.
• Credibility is the #1 reason companies are funded by angels and the #1 reason why they’re not. Keep this in mind throughout all of your interactions with potential angel investors.