Thursday, January 31, 2013

2277 tech companies were acquired in 2012, but selling them is a tough way for an Angel to make a living.

 The 2012 Tech M&A Report from CB Insights, based on their private database, was released yesterday. CB Insights is the firm that worked with the Angel Capital Assn. to produce their recent Halo report on Angel Investing. This new report covers acquisitions of both Angel and VC backed private companies.

Conclusions, some surprising:

Globally, 2012 saw 2277 private technology companies acquired.  For deals with disclosed valuations, acquirers paid $46.8B with 30% of deals accounting for 80% of the value.

In a big surprise, 76% of tech companies acquired in 2012 had not raised institutional investment (VC/PE) prior to acquisition. While there were no bootstrapped or strictly angel-funded billion dollar exits (of which there are few in any case), it is clear that there are a lot of tech companies being formed and sold who sustain themselves on their bootstrapping  profits, angel (friends & family) financing, etc.

While there is much fanfare when the billion dollar exits happen, they represent 2.5% of all private tech company acquisitions in 2012 (translation: they don’t happen often). More than 50% of deals are for less than $50M and more than 80% of the acquisitions are less than $200M.

Google and Facebook were the most active acquirers, each doing 12 private tech company acquisitions in 2012. Five of Facebook’s acquisitions were talent acquisitions. Google and Cisco were most frequent disclosers of private company valuations.

California saw the most private tech companies acquired in 2012, not  all that surprising given that a majority of tech investment (both deals and dollars) goes to the Golden State. However, Cal’s dominance was something to behold as the state had more private tech companies acquired in 2012 than the next five states combined.

Massachusetts was not a top 3 destination for acquirers. Mass remains a top market for tech VC despite losing some of its mojo to NY which has now usurped the #2 spot. On the M&A front, Mass was somewhat surprisingly not in the top 3 as it got edged out narrowly by Texas.

Here in the Northeast, the number of companies acquired in each state were as follows:  MA-87, CT-14, NH-10, ME-5,VT-5, RI-3.   New York had 138, South Dakota had none.

Are these acquisitions really good for the investors?

Where the data was provided, the median raised was $16.6 million, the median acquisition price was $73.5 million.  For discussion let us assume that we could buy the median investment, much like an index fund.

At first glance one might assume that we can sell the company for about 4.4X our investment but this is incorrect. We didn’t purchase the company; we invested, so the founders and others also hold shares. Assuming that after investing our 16.6 million, perhaps in several rounds, we own 70% of the company. We then sell our stake for $51.5 million, or 3.1X our investment, possibly a good return.

An old time venture capitalist, such as Bill Congleton who negotiated the original investment in DEC for AR&D, would have been happy with a 3X return, as long as it took place in three years. (His target, 3X in three years, 5X in five years). Alas, an exit today can easily take seven to ten years with our rate of return diminished accordingly.

We are working with medians, so half of the time we can do better.  Alternatively, we can join the Lake Wobegon Angels, where all the women are strong, all the men are good looking, and all our investment returns are above the median.

An Angel’s Diary.  Three decades ago, Bill Congleton was looking at a company I had founded.  Boldly, I asked his partner, John Shane, what they might be thinking about pricing. “Bill can be tough on valuation,” replied Shane.  “After all, he once bought 70% of DEC for $70,000, and he likes his new deals to be better than his old ones.”

Tuesday, January 29, 2013

Recalling Mort Goulder, Angel Group Pioneer

Mort Goulder, a towering figure in the formation of angel investment organizations, passed away five years ago this month at the age of 87.   Having worked closely with Mort, I wrote a short bio and collected tributes from many of his colleagues, some of whom are still very active in our angel groups today. Here are samples from 2008.

Mort and I at the very first NE ACA Regional Summit in 2005

Mort Goulder was one of the fathers of angel investment organizations.  He founded the Breakfast Club in 1976, one of the very first angel investment groups in the United States, a group that is still very active. Since inception, both the Breakfast Club and Mort individually have invested in more than 100 deals. Mort seldom discussed his personal wins and losses, but other members of the Breakfast Club have been able to track annual returns approaching 30 per cent over past 30 years.

Mort also gave of his time to help others understand the value of angel investing and the investment model used for the Breakfast Club. His mentoring activities encouraged and supported the establishment of other angel groups in the Northeast, particularly including the eCoast Angel Network and the Northeast Angels.  Being both a successful entrepreneur and angel investor, he served as an inspiration to generations of entrepreneurs.

But what distinguished him most was his sense of purpose.  Speaking at the first New England Regional Angel Conference in 2005, Mort observed that the American entrepreneurial system had been very good to many of us, and he said it was our responsibility to “give the other guy his chance.”

Selected Tributes to Mort from Angels and Entrepreneurs

"His joy while talking to an entrepreneur was visible and if the entrepreneurs could display intelligence and innovation those of us around the table could see the ideas bounce back and forth. Sometimes sparks would fly. It was extremely exciting.
When I meet him I knew -- this is who I want to emulate.

His advice to these folks as they faced the ups and downs of growing a business was practical, encouraging and down to earth. I think of him as helping the team uncover the truths for that specific set of problem. He was a natural truth seeker.

He was an intellectual adventurer and a torch bearer for all of us the believe entrepreneurship will unleash new approaches – driving commerce, providing jobs and solving one-by-one problems facing human kind. The fearlessness of his style of early stage investing was inspiring. I believe that he was the Johnny Appleseed of entrepreneurship in New England putting out seeds that created and inspired all parts of the ecosystem - innovators and investors. The fruits will show up for decades. He was generous in all senses of the word. I was privileged to know him and be his friend." 

Jean Hammond, Entrepreneur, Angel Investor, Co-Leader, Golden Seeds Boston Forum

"Mort was an early investor in Bitstream, where I served as Secretary and General Counsel for the 1993-1996 periods. Mort held observation rights and, as such, served as the original model to me for Board Observer. He attended every quarterly meeting and, on a small board fraught with intense personalities, made his genial, unassuming presence felt more at the subconscious level than otherwise. With Mort at our side, Bitstream went from a period of big losses to IPO. Mort truly 'fought the good fight.'"
William F. Swiggart, Swiggart & Agin, LLC

"As I sit here and think about of all the people out there who have influenced my life, it is hard to find anybody like Mort. A friend, a mentor and a really good person. He has bettered so many entrepreneurs, so many lives, so many families. NH entrepreneurs have lost their finest."
Alex Bakman, Founder, V-Kernel, Founder, Ecora

"I knew Mort for but a few of his last years and he became a warm and valued friend in those few years. An inspiration to me and to all who were fortunate to know him. He will be missed."
Frank Ferguson, President, Curriculum Associates, Inc.

"He was truly unique ------ a one of a kind. Unforgettable
I will always remember the twinkle in those bright blue eyes. It telegraphed his love for the adventure of life He fully engaged in it, even at an age when most men retire and slow down.
His enthusiasm was contagious. Mort loved technology, entrepreneurs and their start-up companies. To invest in start-ups at his age was the greatest affirmation of the triumph of confidence and hope over pessimism and despair. It was a high privilege to be his friend, Breakfast Club colleague, and co-investor in many ventures. I will sorely miss him." Arthur Fox

"For those of us who are not yet Mort's age, he was a great role model or how to age without getting old." David Friend, Chairman & CEO, Carbonite, Inc.

"Breakfast at Nashua Country Club or Denny's will never be the same. His hand in making start-up technologies into thriving businesses will be sorely missed. It was a true privilege to have known him."
Peter Antoinette

"I've spent the last two hours reflecting on what a great influence Mort has had on me over the last 20 years, since he and I separately invested in Innovative Telecom at the behest of another beloved departed Brantz Mayor. I had a lock on ITC"s equity to avoid cram downs by virtue of a loan that I made during a critical time. It was holding up subsequent financing. Mort and I met for the first time then, and he convinced me that my lock was not the way venture capital was done. By the strength of his caring to explain it to me, I gave up the lock and subsequent financing through Frank Alex, then at Zero Stage was put in place. That was the start of innumerable breakfasts invitations and investments. Arthur Fox's words in memory are truly heart felt, insightful, and inspirational."
Taylor Soper

Breakfast Club Pioneers receiving plaques.   L. to R. George McQuilken, Jerry Schaufield, Professor William Wetzel, Taylor Soper,  Mort Goulder, George Schwenk, Arthur Fox, David Steadman
The Breakfast Club.

To my knowledge, the Breakfast Club was founded due to  coincidence when Mort Goulder and Dick Morley  met one another on a cruise.  George Schwenk and Doug Drane joined them to form the group, which met over breakfast at the Country Club in Nashua, NH.  Bill Wetzel, then at UNH, named them (and us) "Angels."

Monday, January 28, 2013

Maine Angels invest $3,345,000 in 20 companies, making 2012 their best year ever

 “We invested $ 2,145,000 in 13 new (to us) companies,” says Sandra Stone, now in her second year as Chair of the Maine Angels. “Our members made $1.2M in 7 follow on investments in existing portfolio companies (counting the unusual 2nd round of Respiratory Motion in 2012 as still ‘new money’).”

The Maine Angels has grown to 51 members, with 28 of them investing in 2012.  New investments include Northern Equity Investments, Abierto, Avaxia, Pika Energy, Zylo Media, Respiratory Motion, Jam Hub, JB Therapeutics, Cerahelix, Playrific, Digital Life Technologies, Gelato Fiasco, and Academic Merit.   “With Northern Equity Investments, Pika Energy, Abierto, and Zylo Media, we were among the lead investors,” says Stone.

“Since inception in 2003, 42 Maine Angel members (counting both active and alumni) have invested $9.585,800 in 66 deals in 42 companies that have presented at our member meetings.”

Asked where her best deals were coming from, Stone replied that many were referred by group members, a couple came from our NE ACA Regional Summits, and that accelerator activities in Maine were  a valuable resource.

Maine Angels Vice Chair Don Gooding has been Executive Director of the Maine Center for Entrepreneurial Development since October 2010 and also teaches Innovation Engineering at USM. Don recently recorded a very nice eight minute talk on The Innovation Village which you can see here. A sample: “We don’t want to live in Silicon Valley; we love it here in Maine.”

In his role at MCED, Gooding works closely with John Voltz, Executive Director for Blackstone Accelerates Growth, an Innovative, Maine-focused Entrepreneurship Program.

Blackstone Accelerates Growth was launched in October, 2011, with the approval of a $3 million grant by the Blackstone Charitable Foundation. The initiative aims to help Maine transition to an innovation economy that supports sustained economic growth for years to come. With a goal of helping Maine companies add an additional 10,000 skilled jobs over the next 10 years, this initiative desires to  establish regional hubs of innovation and entrepreneurship to serve as catalysts to propel new and existing businesses to greater levels of profitability and job growth.

Well done, Maine Angels.

Our previous report on the Maine Angels was published last June.