Category Archives: Angel investments

Meta Secures $23M in Series A led by Horizons Ventures, Tim Draper and Y-Combinator partners

I’m glad to share with you that I’m an investor in Meta – an augmented reality hardware and software company. Glad to be in the same round with other industry veterans.

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PORTOLA VALLEY, Calif.—January 28, 2015— Today Meta, the company to bring the first Augmented Reality computing wearable to market, announces the close of its $23 million Series A funding round. The round is led by Li Ka-Shing’s Horizons Ventures, Tim Draper, BOE Optoelectronics and Y-Combinator partners, Garry Tan and Alexis Ohanian. Other investors that participated in the round include Danhua Capital, Commodore Partners and Zappos Founder Tony Hsieh’ Vegas Tech Fund.

Meta glasses are the first holographic, see-through display that allow users to see, create and interact with digital objects shown in physical space. The company is envisioning a world that no longer isolates people with flat screens, but rather, brings them together and allows seamless interaction and collaboration between digital objects overlaid on the real world.

“We are humbled by the caliber of investors that have backed us and are helping us turn our dream into a reality. These are the very same people who first put their faith in Tesla and SpaceX and are now placing their confidence in our vision, and we couldn’t be more proud,” said Meron Gribetz, CEO of Meta.

Already, the company has shipped its first product, the Meta 1 Developer Kit after an incredibly successful Kickstarter campaign that ran in June 2013. Coupled with independent funding, they raised a total of $2 million by the end of the campaign. Now, over 1500 developers and companies such as the world’s largest architecture firm Arup, Salesforce and Stanford University based company, SimX are building augmented reality applications with Meta’s SDK.

To keep informed on Meta visit: http://www.getameta.com

About Meta:

Meta is an augmented reality hardware and software company based in Portola Valley; led by Founder & CEO, Meron Gribetz, Chief Scientist Prof. Steve Mann (inventor of wearable computing), Lead Advisor Prof. Steve Feiner (pioneer of augmented reality) and Director of User Interface Jayse Hansen (Hollywoods #1 user interface designer, creator of UIs for Iron Man 1, 3, Avengers, Hunger Games).

Meta glasses are the first holographic, see-through display that allow users to see, create and interact with digital objects displayed in physical space. Meta’s SDK has attracted over a thousand development groups who are building gaming applications and professional applications in the areas of medical simulation, data visualization, architectural visualization and industrial design.

What to look for when making angel investments?

Here, I’ll try to share some of the things I had to learn the hard way so that for whoever wishes to enter into angel investor, there’s some work cut out for them.

Note: this is something I am still learning along the way so please do correct me if I got it wrong

 

Investment philosophy
Everybody has their own philosophy (or simply put, whatever makes them tick). Here I’m sharing some of mine:

  1. Investor base – I only invest in companies along with other high profile investors (which would allow the company to have great access for future business development if or when required)
  2. Winning formula – I invest in companies with a winning angle (either by a special algorithm, patent protection, lack of competition etc). User traction is important but is not the only factor
  3. Profitability –  Having sheer user numbers is meaningless since a company could spend more money on performance marketing. A clear path to profitability is way more important (and how marketing turns into revenue)
  4. Valuation – I am ok with high valuation but it has to have some sort of support to it.
  5. Region – Most people invest in regions they are close to / understand well. I only invest in US startups but increasingly consider European and Asian ones (yet to do my first one)
  6. Management team – Some people insist of having the management team having successfully exited at least 1-2 startups. For me, I don’t have much of this restriction – as long as they aren’t straight off from college / business school.

The key here is to stick with the rules you set for yourself here. There would be occasions where you see investment opportunities which meets 4 or 5 out of 6 of the criteria, and you are really debating whether to break the rule just this once or not. (And don’t kid yourself, it happens more often than you think!). Rule of thumb is – never break / twist rules you set for yourself to meet one investment opportunity. Better ones will always present themselves further down the line.

Valuation 101
There are a couple of terminologies used which you would frequently see: Capital raisepre-money and post-money valuation.

  • Capital raise: the total amount a company is raising in a particular fundraising round
  • Pre-money valuation: the value (equity value) placed on a company before adding the capital being raised
  • Post-money valuation: Pre-money + capital raise

You would constantly see a company quoting a pre-money valuation in any given round as a basis, simply because pre-money valuation would stay the same while you continue to build up the amount you are raising, and to prevent re-calculation / re-drafting of termsheets if you quote a post-money valuation.

Type of security
There are two ways one could invest in a startup – Straight equity or convertible note. From many perspectives there are lots of differences, which I’ll try to layout a few.

1. Convertible note: Essentially a company is issuing a debt to investors, with the upside of converting to equity shares upon a few pre-determined conditions. Typical financial terms to look for include

  • Principal amount: The amount you are subscribing to in that particular convertible note
  • Interest rate: An accrued interest payment, calculated from the date of signature of the convertible note until the conversion of the note into equity secuirities
  • Equity cap: Different styles of convertible notes would call them slightly differently, but essentially this is the maximum pre-money valuation of your particular conversion, whereas the Series A priced round could be converting at the same time at a higher pre-money valuation. This matters particularly when you expect the Series A pre-money valuation is significantly ABOVE than the equity cap quoted here.
  • Discount rate: In case the Series A pre-money valuation is BELOW equity cap amount stated, then the pre-money valuation for the convertible note holder would be the pre-money stated by the Series A lead investor, less the discount rate stated here.

  • Expiry date: If the company does not raise an equity round on or before the expiry date, the convertible note is automatically converted (unless with written consent from both ends to forfeit the conversion and company agrees to pay investors back in debt holdings)

2. Equity round: Much less terms to look for (Pre-money valuation, capital raise) etc, but there are much more non-financial terms to look for within an SPA (share purchase agreement), e.g. voting rights, board seats, right-of-first-refusal (ROFR), right-of-first-offer (ROFO), and any other terms to protect minority shareholders investing into the company. The SPA can be a handful to read, spanning some 60-80 pages of legal languages. There would also be preference shares terms, as well as a money cap (e.g. 2x / 3x invested  capital)

A convertible note is very popular in US for multiple reasons

  1. Timing and legal issues: Drafting a convertible note purchase agreement is very fast, usually taking a few hours based on set templates. An SPA, however, could take days for the company attorney to draft, and another few days for investors to review and comment. If more than one investor(s) have edits on SPA, that could go on for much longer, and adding to due diligence period, an equity round takes months from termsheet to closing.
  2. Valuation: Placing a pre-money valuation at such early stage could be difficult. If too high then there isn’t enough risk-reward benefit for angel investors; too low then the founders risk selling too much at early stage. The convertible note is a “time buffer” which allows both parties to leave the valuation issue to the Series A lead investor, after proper due diligence and analysis.
  3. Equity cap gain: Usually when convertible note investors subscribe to the note, there is a good expectation of the company leading to a Series A equity round within a short period of time (6-12 months). There would also be an expectation that the equity cap amount is significantly low enough that, upon a Series A conversion, would allow the angel investors have a much lower pre-money valuation than the Series A investors. Effectively, their price per share is much lower
  4. Security: If an angel investor subscribes to an equity round pre-Series A, they get common shares. If a convertible note holder convert as Series A, all investors get Series A preference shares pari passu. There is downside protection to preference shareholders, and if upon a sale / IPO of the company that the asset is higher than the money cap, then all preference shareholders will elect to convert to common shares (i.e. upside is the same)

Usually a convertible note has a minimum commitment of $25k (although there are occasions where startups might accept smaller commitments). If you only have a few thousands to space, AngelList’s Invest Online function could be another option (although as I stated previously, I personally don’t prefer it)

Hopefully after the above, you’re equipped with the basics to understand how to do angel investments!

How I got into angel investing? – Part 2

How I got into angel investing? – Part 2
Opening the Pandora’s box

After I got into Superfly, as an exciting little angel, the first I did was to add that onto my LinkedIn profile. Listing myself as an “angel investor” was fun – a title I literally just bought for tens of thousand of dollars!

I also saw that there’s a website named AngelList, a site widely used by entrepreneurs and investors as a communication channel and almost a “marketplace” and “shopping cart”. I linked my profile to LinkedIn as well as filled in the rest of the details. So now I have two channels to communicate with startups – my existing LinkedIn profile as well as the newly created AngelList profile.

LinkedIn as a channel
Man oh man! I started receiving messages from entrepreneurs globally on LinkedIn (granted, mostly UK and US). On average, I received (and still do) roughly 10-15 investment opportunities per month via LinkedIn, and I turned down all of them (except one where I did do some due diligence but turned down in the end).

LinkedIn wasn’t really designed for that purpose. For an entrepreneur to reach out to an angel investor is not intuitive on LinkedIn, and it’s harder to send messages (you need to send an unprompted add request with a lead message / elevator pitch, followed by a full pitch and a deck. Not the most straightforward way to do so.

AngelList as a much better channel
AngelList on the other hand is a much easier one. They have a list of featured startups, and another list of trending ones depending on followers and who’s listed as investors / advisors. So immediately there’s some vetting of portfolio behind it. If there are startups I like, I can hit the “Get an intro” button (I might have used this a little too often admittedly) to get access to the management directly. It was great. Angel investors can also list the number of investments they make a year, and on average how much they invest per deal. Startups can then pick and choose who they wishes to reach out to. I receive, on average, another 20-25 requests a month (a little less these days considering I have done 6 deals thus far)

My Porftolio
Since I made Superfly investment, I moved on to make 5 others, 4 of each are direct investments with the startups and one was via SecondMarket.

  • Superfly – An online travel metasearch engine. Other investors include Bill Smith and Jeff Clarke
  • Centzy – A company which allows price comparison on local services, and aggregate offline data and make available which aren’t available anywhere else. The round that I participated in have other investors including Cowboy Ventures, Founder Collective, Lightbank, ff Venture Capital
  • CrowdMob – Mobile RTB, per per performance advertising platform.
  • Bang With Friends – Facebook and mobile app allowing “hook-up” with your friends anonymously. Other investors include Tim Draper
  • NetPlenish – Browser extension price comparison search engine. Investors include Dave McClure, Scout Ventures, Ludlow Ventures and an undisclosed strategic investor.

I did my investment of Visual.ly via SecondMarket, broker of the “Invest Online” function on AngelList. I hated that function. It gives you all the documents which you can read through online, and will give you access to a watermarked version of the company deck for review as well. It doesn’t give you access to the management and you make your due diligence research only on 3rd party resources. To me, angel investment is about getting direct access to the management and see if you share their vision, and whether you think there’s something you can contribute to the company. This was not what I got when investing through SecondMarket. All in all, it’s low quality money with no value-add to it. They also charge quite a hefty commission when raising the money from them. I’d strongly suggest against it to all future startups and investors.

Next time, I’ll walk through some of the philosophies I have when I examine investment opportunities, and what I’ve learnt from doing this.

… To be Continued

How I got into angel investing? – Part 1

How I got into angel investing? – Part 1
My first investment

I’ve been asked many times – what is a junior investment banker with next to no money doing in the startup investment space? I ask myself that very question all the time, while I stand humbly on level 1 looking upwards at the internet veterans who I am tagging along in the same rounds in my investments.

Bottom line is – angel investing is fun. There’s a lot you could learn from doing it.

I started my journey back in May 2012. There’s a company I’ve seen with some press coverage called Superfly. It’s a beautifully designed online travel metasearch engine, coupled with personal itinerary and loyalty membership information. It’s very similar to Mile Wise (and kudos to Yahoo! for taking them offline). CEO is Jonathan Meiri. First time I saw this on TechCrunch I thought it was a brilliant idea, and I see great future for them. For some reason, I thought it might be an even better idea if I knew the CEO so that if / when they raise money I want to be first to know about it and be able to put some money in. So, after some semi-stalking on LinkedIn I found his profile and sent him a message to introduce myself and to learn more about the company.

I later learned that Bill Smith as well as Jeff Clarke are both angel investors in this little company – quite an impressive investor base considering its Israeli-origin and early stage. After scrambling a lot through my savings account, I finally found some money to do it.

Coming from a completely different background, reading the termsheet wasn’t easy. Thanks to Thomas from MoFo, he taught me some of the basics here which would later become the foundation of my learning.

I finally signed and returned the termsheet to JM and shortly after wired over the money. I know I’ll have to sit on this for 3-5 years, with no liquidity and a very high chance of kissing it goodbye. But it felt right. It’s money I’m not using for a while, and could open a lot of doors in the online travel space for me.

I went about putting this on my LinkedIn profile and stated that I’m an angel investor in Superfly – a move which opened up quite a can of worms (in a positive way) for me.

…To be continued