SDAC PPM Overview. Will Fowler December 18, 2018

Transcription

1 SDAC PPM Overview Will Fowler December 18, 2018

2 SDAC 2019 Overview

3 What is an Angel? An accredited investor defined by the SEC

4 What is an Angel? Usually non-professional, pre VC investors

5 5,000,000 Accredited Investors in the US

6 .06% Number of Activated Angels

7 80% Of Accredited Investors are Worth LESS than $5M

8 Our Purpose is to Educate/Accelerate Investors

9 Comparison Angel Conference Data Seattle Angel Conference 26 Companies Funded $2.5M Invested 300 New Investors 1 Fund 1 Group

10 Effects New Active Investors Join Existing Groups/Funds Make New Funds/Groups Become Mentors, etc.

11 Types of Organized Investment Passive Funds Managed Funds Active Funds Event Funds Groups/Networks Solo

12 San Diego Angel Conference Structure

13 Structure Conference, Host, Organizer, Administrator, Fund These funds take a village Conference is the event hosted by USD and the SBDC The Brink Organizer is also USD and the SBDC The Brink, but they have hired John Sechrest to do this work Administrator is Signal Rock Capital, LLC: Designed, organized the fund, prepped and coordinated legal docs, opening bank account, distributing legal docs, collecting checks, coordinating tax returns, etc.

14 Investor Education Process Investors Meet Every Month Relevant topics: Deal Flow, Terms, Outcomes, etc. Hosted by SBDC The Brink Lead by Silvia Mah, Victoria Lakers, and Tyson McDowell Process Facilitated by John Sechrest Fund Administration handled by Signal Rock Capital

15 San Diego Angel Conference PPM Overview

16 Sebastian Lucier: (858)

17 What is a PPM?? Private Placement Memorandum The legal disclosure of a Private Offering (not public) Lays out the legal structure, operations, and risks of the fund Meant to give interested investors a clear view of what is being offered Identifies key parties, indemnifications, investment focus, etc. Long, boring, but important to understand

18 How do I read this thing? Four Main Parts Term Sheet: Executive Summary PPM: The details Operating Agreement: Legal entity formation document Subscription Agreement: Signatures and disclosures BONUS: Signal Rock Operating Agreement: For transparency

19 Term Sheet Units and Members Each unit is $6,000 $5,000 goes to the investment $1,000 goes to administrative overhead (filings, franchise tax fees, CPA tax returns, etc.) Minimum of 20 Units Maximum of 40 Units Anyone who buys a Unit is a Member Two Unit maximum for Members Each UNIT gets one vote

20 Term Sheet Purchasing a Unit (or two) Sign subscription docs (we ll cover those) Write check to San Diego Angel Conference 2019 Fund 1, LLC Your funds go into escrow until it officially starts operations Start Date is January 9, 2019 with a minimum of 20 Units

21 Term Sheet Restricted Securities You cannot sell your unit on the open market unless you are a licensed broker dealer You can potentially sell/transfer your units privately if certain conditions are met

22 Total Capital $120K Min $240K Max

23 Invested Capital $100K Min $200K Max

24 Term Sheet Expected Startup Costs $5,000 to the fund administrator $1,000 in miscellaneous legal costs $1,000 in other miscellaneous costs $7,000 total All other administrative funds are kept in Fund account and paid out as needed over the next 10 years Any unspent administrative funds will be paid back to investors pro-rata if/when there is an exit (there will be an exit)

25 Term Sheet Administrative Capital Call We think $1,000/unit is enough for administrative expenses ($20K-$40K) There COULD be an additional capital call of $1,000/unit without a member vote This is reserved for special/unexpected circumstances

26 Term Sheet Risks Early Stage Investments Geographic Focus of San Diego No Specific Industry Focus Very Risky!

27 Term Sheet Company Application Info 79 Company applications for funding 50 Companies have submitted a Gust profile Majority from San Diego Some from LA Biotech, Healthcare, Consumer Products, Education, Software Majority are Seed, some are FFF, and some are Series A Valuations are all over the place

28 Term Sheet Form of Entity Manager Managed LLC One Manger (two optional) controls bank account, negotiates terms, makes post investment decisions 10 year operational limit (can be changed by member vote)

29 Term Sheet LLC Manager and Fund Chair Are the same thing: One manages the fund ops, one manages the LLC ops Elected by members at Organizational Meeting Silvia Mah is expected to be Manager and Chair

30 Term Sheet Member Participation Members are expected to participate in all screening, pitch evaluations, due diligence, and voting activities Expectation is that Members attend at least 50% of meetings, including conference event (investment decision meeting). After investment, there is not expectation for additional meetings

31 Term Sheet Member Voting Members will vote (per Unit) on the investment decision The Manager will negotiate the terms of the deal to present to the membership Voting can be used for screening, but is not required A quorum is needed for any official fund vote

32 Term Sheet Taxes Fund treated as a partnership K-1 s issued annually (electronically) Possible 1202 and 1244 Eligible

33 Term Sheet Distributions Made pro-rata based on ownership in fund $6,000 of $120,000 = 5%

34 Term Sheet Conflicts of Interest Need to be disclosed Use your best judgement Investors should not have their startups apply (if investor is CEO)

35 Term Sheet Indemnification Fund indemnifies Members, Manager(s), Fund Officers, & Administrator Liability for members is capped at amount invested in the fund Liability for manager is not capped Risk likelihood is relatively low, but magnitude relatively high

36 Term Sheet Other Important Terms Fund will NOT make follow on investments Tax risk is undefined No portfolio just one investment Value of company is total fiction Repercussions for non payment: Fund can cause member to default unit back to the fund

37 Subscription Docs

38 Subscription Documents What to Know/Sign Accredited Investor Questionnaire FINRA Disclosure Consent for electronic K-1s Investment Intent Subscriber Information Cert of Signatory Operating Agreement Acceptance Acceptance by Fund Manager (Silvia Mah)

39 Thank You