Incentive Targeting Sold To Google, 82 Angels Cash Out

You may see lots of Scowling Scrooges and Sourpuss Santas this season, but you’ll see Smiling Angels all around Boston, 82 of them, who invested in Incentive Targeting, acquired by Google yesterday.

“It has been a hard-working, but a wonderful ride” says one of our private sources. “This evening, after the official closing, our “family” had a celebration and many of the 82 investors joined the party. Yes, you got that right – 82! I just came back. The investors are happy as can be -- what a better way to end a year than having a story to share at upcoming cocktail parties about how their investment was not only above the average, but also was bought by Google!”

Incentive Targeting, as a large 100% angel deal, may well prove to be a milestone event both locally and nationally. “This is great for the angel ecosystem in town: it is a shot in the arm to have Google validate one of our smaller companies and it is liquidity for 82 angels who will plow that money right back into local companies to fund innovation and create jobs. Exits like this are exactly what aspiring ecosystems crave - Boston is established, but needs these exits to stay strong,” says Christopher Mirabile, Managing Director of Launchpad Venture Group. 

The amount of angel money invested in this company was $6.2 million, with Launchpad at $1.3 million and Hub Angels at $600k.  Angels also contributed effort and advice. “Launchpad member Bob Gervis was on the board and was absolutely instrumental in helping the company get the deal done and in helping them to raise the two bridge rounds necessary to fund them through the deal,” says Mirabile. Paul Silva of River Valley coordinated the second tranche of the A round.  Launchpad led the A2 round.

“This company raised a sizable amount of capital over more than three years, all from angel investors.  To me, this shows the power angel investors can have by syndication and cooperation,” says Gervis. “In addition, I believe that the fact that Incentive Targeting raised all of its capital from angel investors facilitated the company's ability to achieve a successful exit.  The reason is that by relying exclusively upon angel financing, the company was able to manage its valuation during each financing round in such a way as to broaden the range of acceptable exits.  While the terms of this transaction have not been disclosed, I believe that all parties are pleased with this outcome.”

Syndication proves successful

For angels, this was an absolutely massive syndication measured both by number of investors participating and by the amount of money raised.  Its origins lie back a decade or so; back before there was either a national Angel Capital Association or a regional angel syndication group (we call these our quarterly New England ACA Regional Summits). James Geshwiler of the Common Angels had invited a number of us to meet together to discuss common problems.  Present were Ham Lord (Launchpad) and myself (eCoast Angels).  There were others present, but I’ll have to refresh my memory. The ACA was formed in January, 2004 and we all became charter members.

Our first syndication meeting was in 1975. But, as we all know,   it can be a long slow journey from investment to exit. “Incentive Targeting is an early example of New England angel groups pioneering the formation of large angel syndicates.  We were the first region in the country to really do this well and it is a credit to our strong ecosystem and the tight, cooperative and friendly relations between all the groups in the northeast,” says Christopher Mirabile.

Kudos exchanged

"Launchpad is incredibly proud to have been part of such a large and successful investor syndicate and for the opportunity to assist Josh, Win and Ben on the board as they built this terrific outcome. It is a credit to the angel community in the northeast as well as its fantastic entrepreneurs that we have this to celebrate. Congratulations to all," says Mirabile.

“We didn’t reach this milestone alone. From day one, we have relied on the support and commitment of our retailers, brands, investors, partners, and advisors, as well as the hard work and dedication of our team. We could not have done this without them, and as we look ahead, we are thrilled to be part of Google!”  - Ben Sprecher, Josh Herzig-Marx, Win Burke, and the entire Incentive Targeting team.

 

Tuesday Night: the deal is signed and now comes the toast.  From Left to Right are Nick Pappas of MassVentures, Win Burke, CEO, Robert Gervis, Launchpad board rep, David Verrill, Hub Board rep, and Ben Sprecher, one of two key founders (Josh Herzig-Marx, the other founder, is not pictured). Photo by Christopher Mirabile.

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Launchpad, Retaining Momentum, Announces Two Successful Exits

Angels at rest tend to stay at rest, while angels in motion tend to stay in motion, at least that’s my application of Isaac Newton’s laws to start-up investing. Launchpad Venture Group certainly has great momentum this year, being recognized among the largest and most active angel groups in 2011 and for the first half of 2012.

Since the emergence of accelerators and AngelList make it easier than ever to find new investments, it is a good time to recall that the angel business model does not depend on making lots of investments, it depends on successfully exiting them.

Managing Director Christopher Mirabile tells us that Launchpad has two exits so far this year.

Copiun was acquired by Good Technologies.  Launchpad sourced them, seeded them, and then invested in three additional rounds between 2009-12.  “Each round had a slightly different return, but overall we put in about $800K and got back about $3.4M for a 4.3X return.” (This could be greater depending on the success of the acquirer).

Vela Systems was acquired by Autodesk.  Launchpad did three rounds between 2006-8.  “Again, each round had a slightly different return, but overall we put in $390K and got back $1.7M for a 4.4X return.”

“In addition we have several others that are pretty close and might pop this year.  All in all, a great year for Launchpad!” says Mirabile.

Sources of these investments.

With so many new groups formed to assist us in endangering our money, we have started to ask our angels where their best deals originated.

“The founder of Copiun, Puneesh Chaudhry, approached me after I spoke
at a panel for Babson College, says Managing Director Hambleton Lord. “We discussed his idea for a company and I put him in touch with a couple of Launchpad members who had experience in his market segment.

“In the case of Vela, I believe we were introduced by James Geshwiler (of the Common Angels).  James asked me if we had any expertise in the construction /
commercial real estate market.   At the time, I was on the board of a
company that sold software into commercial real estate owners and
property managers.   In addition, we had a member, Tim Curran, with
enterprise software experience. Tim became the Launchpad  board
representative on Vela's board and then later on became the CEO of the
company.”

We congratulate Launchpad for their latest successes, with very great thanks to Christopher and Ham for sharing their experiences with all of us.

An Angel’s Diary.

At MIT fifty years ago, Professor Alan Lazarus taught every student about motion and vectors using a demonstration, running double sessions in lecture hall 26-100. He rigged up a model train with a spring loaded cannon on a flatcar pointing straight up. While the train was stationary, he fired a ping pong ball from the cannon; the ball went straight up, and then fell straight down, right back into the cannon. He repeated the experiment, with the train moving forward very slowly. Lazarus kept increasing the speed of the train, and each time he fired the cannon the ball maintained its forward momentum as it was fired, returning each time into the cannon. A very effective demonstration clearly remembered today.

Two new Startup Books For You

David Cohen, founder and CEO of TechStars, first presented his new program to us five years ago at our Regional Summit held here in Portsmouth, NH, hosted by the eCoast Angels.  Since then, TechStars has spread into several cities with a thriving program run nearby in Cambridge by Katie Rae.  Here he serves as a guest blogger; thanks, David. 

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One thing that makes TechStars really work, and a reason people come from all over the country to participate, is that here in Boulder we’re part of a vibrant entrepreneurial community. Entrepreneurs and venture capitalists know they can come here to seek out investment opportunities, business development partners, funding, mentorship and support.

 

Brad Feld’s new book Startup Communities: Building an Entrepreneurial Ecosystem in Your City, which made the Amazon Top 10 Business Books of 2012, explains how it’s possible to create a startup community in any city. Brad really goes deep with this stuff, and in the past few years has written a lot about startup communities. One example is a blog post about inclusion in which he explains why the startup community needs to include anyone who wants to participate.

When I spoke at the Silicon Prairie startup awards I touched on many of the concepts in the Startup Communities book. You can watch the video of my talk, which includes a simple exercise to help you figure out if you’re a leader of your startup community or not, along with tips for those leaders. Building a sustainable entrepreneurial community takes time, and the leaders need support from the entire community. Brad points out that you have to take a 20-year view to building a community that will thrive, and that begins with identifying the leaders who will continue to be a part of the community for years to come.

The idea of startup communities really seems to be catching on. Earlier this year, I was invited by Xconomy to come to San Diego and talk about entrepreneurial communities to a group of about 25 entrepreneurs and investors who were very interested and motivated to learn more. One thing we talked about was Brad’s notion of entrepreneurial density. If the best efforts of a city occur in one dense area, you’ll have more serendipity and excitement about startups. In Boulder, the entrepreneurial density is palpable. Larger cities will need a different strategy than smaller towns. In New York, for example, most of the startup activity happens in Union Square. For a large metropolitan area like San Diego, it makes sense for the entrepreneurial community to be consolidated into a compact area or a well-defined neighborhood. That density is important because events can be centered in that part of town, investors know where to look for opportunity, and out-of-town entrepreneurs know they can go there and meet a bunch of interesting people.

Brad also has another upcoming book, Startup Life: Surviving and Thriving in a Relationship with an Entrepreneur. He and his wife, Amy, co-wrote this book about their experiences in 20 years of entrepreneurial life together. They share some great insights, along with examples of other couples who have managed to find ways to achieve both personal and professional success. It won’t be released until January, but you should probably go ahead and pre-order it now.

I had the opportunity to contribute to both of these incredible books, and I’ve been very lucky to learn a lot from Brad, who is the master of work-life balance. Personally, I’ve always placed a heavy emphasis on work-life balance, and as crazy as TechStars is, my family somehow makes it work. Finding that sweet spot is definitely one of the most challenging parts of being an entrepreneur. When you’re throwing yourself into your business–as you pretty much have to with a startup–it’s easy to neglect other parts of your life. Startup Life is a great book for both new and seasoned entrepreneurs who want to enjoy their relationships and live life to the fullest in the midst of a crazy busy lifestyle.

You can read more about both of these books, along with three others that Brad has in the pipeline, at Startup Revolution.

Angel Returns Exceed VCs; Small Funds in the Angel Space Do Best; Band of Angels Reports IRR of 54%

Like us, John Frankel collects research on Angel and VC returns. He is particularly bullish on small-cap VC funds investing in the angel space, of which we have a couple of new entries founded by local angels: SideCar Angels by Rick Lucash and Jeff Stoler, and  Beta Fund by Dan Von Kohorn and Norm Meisner. 

 

“I finally have had the time to collate the research we have found, and am happy to share it. This post is quite technical, but the bottom line is simple: angel-stage funds outperform,” says John Frankel  founder and partner of  ff Venture Capital, writing in TechCrunch. His conclusions:

Venture capital funds, in aggregate, managed an anemic 4.41 percent end-to-end pooled return over the last 10 years. "Despite the risk and illiquidity of the asset class, they haven’t outperformed public markets."

“Angel groups, on the other hand, have done exceptionally well,” he says. Every large angel return study has mean angel IRRs ranging from 18 percent to 38 percent. Detailed exit analysis has revealed that angels have robust rates of “home run” (5x or more) investments, while maintaining a decisively lower level of risk.

Frankel argues that “smaller funds, focused on the angel space, with deep resources for due diligence and an ability to help their companies get to the next level, should outperform.”  Click here to access Frankel’s excellent tables, diagram,  and references, as well as to view his full conclusions.

Band of Angels

We first met Ian Sobieski, Cordinator of the Band, roughly a decade ago at planning meetings leading to the formation of the Angel Capital Assn.  From the web site:

 “The Band of Angels is Silicon Valley's oldest seed funding organization. We are a formal group of more than 130 former and current high tech executives who are interested in investing their time and money into new, cutting edge, startup companies.” 

“The Band has invested more than $208M into 240+ companies since 1994. Of these 54 have been acquired and 9 have gone public on the Nasdaq. The cumulative IRR for all band investments since inception, including the losses suffered through the bust, is a positive 54%.”   

New Funds

“SideCar focuses on filling out investment rounds that are syndicated by angel groups and microVCs.  As you know, most angel group rounds in the Boston area have more than one group participate,” says Rick Lucash. “Our goal is not to compete with established groups, but to increase deal flow and assist angel groups and companies by bringing additional money to the table.”
 


According to Norman Meisner, the Beta Fund intends to raise $5 million. The fund will focus primarily on emerging high-tech and bio-tech companies. “We are a small fund for small companies.  We invest early, typically at the angel financing stage, prior to typical venture capital financing, and in collaboration with other angel funds and groups. We see this as the time when value grows fastest, capital can have the most impact, and good judgment and execution can make the biggest difference.”

Who’s Next? Rumors abound that other small funds are on the way.