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Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups

David S. Rose, Reid Hoffman (Foreword by)
ISBN: 978-1-118-85825-7
304 pages
April 2014
Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups (1118858255) cover image

PRAISE FOR ANGEL INVESTING

“The world of entrepreneurial startups is where the most exciting and creative action is happening in today’s business world, which is why I was a strong supporter of the JOBS Act of 2012. No wonder millions of people are wondering how they can get involved as investors. There’s no better place to start than by reading David S. Rose’s Angel Investing.
—U.S. SENATOR CHARLES E. SCHUMER, Senate Finance Committee

“From the best methods for finding and picking tomorrow’s big winners to proven techniques for adding value to any business you invest in, Angel Investing provides readers with everything they need to know to get started in this fascinating, fun—and lucrative—business arena.”
—DAVID BACH, #1 New York Times bestselling author of The Automatic Millionaire and Start Late Finish Rich, Angel Investor

“As an angel investor and a long-time fan of David S. Rose, I was delighted to hear he finally captured his wit and wisdom in the pages of a book. David’s witty stories and angel investing principles — as well as his unsurpassed knowledge of his field — are teaching me so much more about investing than I’ve learned over the years doing it!”
—BARBARA CORCORAN, Real Estate Mogul, Shark Tank star, Angel Investor

“This is the most comprehensive and readable guide to angel investing ever written. The chapter on valuation and expectations lays out a clear framework for understanding one of the least well-known pitfalls in the angel world. And its emphasis on creating a win-win relationship with the entrepreneur is at the heart of being a long-term successful angel—and continuing to see the best deal flow. I recommend this book to anyone even thinking about making or receiving angel investments.”
—HOWARD L. MORGAN, Founding Partner, First Round Capital

Angel Investing is an engaging, easy read, full of real stories and hard numbers, actual cases and a whole lot of good advice. David S. Rose brings tons of real-world knowledge to the subject that makes this required reading for every new angel.”
—TIM BERRY, Author of Business Plan Pro, Entrepreneur, Angel Investor

“Anyone with a checkbook can be an angel investor, but it takes insight to do it well. David S. Rose has written a terrific new book that will help would-be angels make money, rather than lose it. From explaining the value of diversification, to tips on evaluating deals, to offering up plans to attract good deals, Angel Investing will help you move from a money-losing amateur to a money-making professional angel. And if you’re an entrepreneur looking for angel money, you should read this book too. It will help you understand what knowledgeable angels are seeking and how they will evaluate you.”
—SCOTT SHANE, author of Fool’s Gold? The Truth Behind Angel Investing in America

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Foreword Reid Hoffman xv

Introduction: How I Became An Angel Investor xvii

Part I The Basics of Angel Investing 1

1 The 25 Percent Annual Return:Why Everyone with Six Figures to Invest Should Consider Angel Investing 3

2 Plus, It’s Really Fun! The Nonfinancial Rewards of Being an Angel 23

3 The Portfolio Theory of Angel Investing: Why Every Angel Needs to Invest in at Least 20 Companies 37

4 The Financial Life of a Startup: Where Angels Fit in the Big Financing Picture 47

Part II The Nuts and Bolts 55

5 Develop Your Deal Flow: Sourcing and Identifying High-Potential Opportunities 57

6 Bet the Jockey, Not the Horse: Evaluating the Entrepreneur and Picking the Right One to Back 67

7 Here Comes the Pitch: Listening to the Story Does It Make Sense for Your Portfolio? 77

8 Look Under the Hood and Lead a Deal: Coordinating Due Diligence and Running the Show 87

9 Valuations and Expectations: Discovering the Secret Economics of the Angels 93

10 Investment Rounds and Their Forms: Common Stock, Convertible Notes, or Preferred Stock? 109

11 The Art of the Angel Deal: Negotiating a Win/Win Relationship with Your Entrepreneur 121

12 Term Sheets and Closing: Trust Everyone…but Cut the Cards Anyway 127

13 After the Investment: Managing Your Portfolio and Adding Value as an Active Angel 133

14 Exits and Other Unicorns: Getting Your Money Out Makes All Things Right 147

Part III Your Place in the World of Angels 159

15 The Entrepreneurship Financing Ecosystem: Grants, Venture Capital, Accelerators, and Other Players 161

16 Building Your Angelic Reputation: Getting the Best Deals to Come to You 175

17 Joining an Angel Group: Increasing Your Opportunities and Reducing Your Risks 179

18 Impact Investing: DoingWell While Doing Good 189

19 Sit Back and Let Someone Else Do theWork: Investing in Startups through Seed Funds and Venture Funds 195

20 Crowdfunding and the Global Revolution: Angel Investing for Everyone 199

Appendixes

A Angel Screening and ValuationWorksheet 205

B Angel Investment Due Diligence Checklist 209

C Gust Convertible Note Term Sheet 215

D Gust Series Seed Term Sheet 223

E Gust Revenue-Backed Note Term Sheet 237

F International Angel Investor Federations 243

G Major Regional Angel Groups 245

H Angel Investing Blogs and Resources 249

Glossary 253

Acknowledgments 265

Index 271

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DAVID S. ROSE is a serial entrepreneur, Inc 500 CEO and one of the world’s most active angel investors. Described by Forbes as “New York’s Archangel,” by BusinessWeek as a “world conquering entrepreneur,” and by Red Herring as “patriarch of Silicon Alley”, David has founded or funded over 90 high tech companies. He is the founder and CEO of Gust, the international collaboration platform for startup financing used by over 50,000 accredited angel investors, 1000 angel groups and venture capital funds, and 250,000 entrepreneurs. Gust received the SIIA CODiE Award for Best Collaboration Solution in both 2012 and 2013, as well as the 2012 SWIFT/Innotribe Award as the world’s most innovative financial technology company.

David is also Managing Partner of Rose Tech Ventures, an early stage angel fund; Founder and Chairman Emeritus of New York Angels, the most active angel group in America; and Associate Founder and Founding Track Chair for Finance, Entrepreneurship and Economics at Singularity University, the Google/NASA-sponsored post-graduate program in exponential technologies. A native New Yorker, David has a BA from Yale University, an MBA in Finance from Columbia Business School, and a D. Eng. h.c. from Stevens Institute of Technology.

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April 28, 2014
The Gust Guide to Making Money and Having Fun Investing in Startups

They deliver more capital to entrepreneurs than any other source. And they often receive an incredible return on their investments. They’re angel investors, some of the most important—and least understood—players in business today, whose investments in startups exceed $20 billion per year. Many, if not most, of the world’s largest companies were originally funded by angels—companies like Apple, Microsoft, LinkedIn and Amazon.com. But until now, little has been written about these angels, due in part to their preference for anonymity. ANGEL INVESTING: The Gust Guide to Making Money and Having Fun Investing in Startups (Wiley; April 2014) by David S. Rose provides an inside look at who these angels are, how they operate, and how anyone with six figures to invest can potentially generate annual returns of 25% while funding tomorrow’s industry leaders…and having a lot of fun in the process.

In the past few years, angel investing has moved from an arcane, tiny backwater of the financial world to a business arena that receives coverage in mainstream newspapers and smash hit television shows such as ABC’s Shark Tank. Every year angels invest over $20 billion into startup companies in the US alone (and double that amount worldwide). Historically this been a virtually random activity, but over the past several years angel investing has begun to be recognized as a legitimate part of the Alternative Investments asset class.

With a foreword by Reid Hoffman—co-founder of LinkedIn and a prolific angel investor himself—together with hard research studies and a host of stories from his personal experience as one of the world’s leading angels, Rose explains in this book precisely how angels and venture capitalists differ, describes proven ways for entrepreneurs to attract them, and provides all the relevant resources for investors to enter into the world of startup funding.

Rose tackles all the challenging questions that have long confounded angel investors and the entrepreneurs seeking to attract them:

  • Who can be an angel…and who should be an angel?
  • Where do angels find hidden startup gems before the public hears about them?
  • How should an angel build a portfolio that can return 25% annually over a decade?
  • What is it like to lose all of an investor’s money? And, conversely, what does it feel like to invest in a failed startup as an angel investor? 
  • What are some common mistakes that inexperienced angel investors make?

Successful angels know that investing in entrepreneurial ventures is more than just providing money. ANGEL INVESTING is the first complete, up-to-date guide to the subject, including what angel investing is, how one gets started, how to find deal flow, evaluate opportunities, negotiate terms, join an angel group, structure investments, and work with venture capital funds.

ANGEL INVESTINGincludes tools, tactics, and strategies for high-tech, low-tech, and every other kind of early-stage investing. Rose opens the doors to those angels who have limited experience, while augmenting the experience of seasoned investors. Entrepreneurs will gain access to the mind-set of winning angels, and learn how best to win them over, as well as finding information on how to value, structure and bring their companies to a successful exit.

The combination of advancing technology, changing federal regulations, rapidly dropping startup costs and new online investment platforms means that it is now possible for any serious investor to undertake angel investing the right way—and that is what the book ANGEL INVESTING is all about.

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