Monday, June 30, 2014

SEED CAPITAL ReVIEW: Fall 2013 Survey of Angel Financings

If you’ve been following the activities of the Entrepreneurial Services Group at Gray Plant Mooty, you may know that we just completed the first ever installment of our SEED CAPITAL ReVIEW report. We created this report, and the survey underlying the findings detailed in it, to try and help companies and investors who are raising seed capital to have a better handle on what’s “market” in early stage private financings in Minnesota.

Earlier this year, we surveyed investors and companies about private financing activity completed in the second half of 2013. We didn’t know exactly what kind of response to expect, given that we were launching this completely new initiative. We were pleasantly surprised to have received responses relating to 126 separate early-stage capital financings from the second half of last year in Minnesota—probably a pretty representative sample. Either everyone really wanted to be entered in the drawing for the $250 Amazon gift card we were offering for participation or, more likely, investors and companies raising capital agreed with us that there could be real value in this type of information. 

If you’re interested in the full report (and who wouldn’t be—it’s at least as fascinating as the most recent posts by all of your “friends” on Facebook), you can find it here. If you’re too busy trying to raise capital to even click on that link, here are a few of the interesting findings:

In an era when generating revenue seems to be more frequently required by investors in deals, 46% of the deals reported in the survey were pre-revenue. 

Not surprisingly, having revenues correlated strongly with higher valuations—17% of pre-revenue companies reported pre-money valuations of over $5 million, while 42% of companies generating revenues had valuations in this range.

68% of the reported financings involved sales of equity, with the remaining 32% being debt. 

Over 70% of the equity financings were common equity, maybe not a surprise given that so many of these financings are early stage.

The Minnesota Angel Tax Credit was utilized in over half of the financings. While the popularity of the program doesn’t make this seem surprising, it is a little surprising because the credit had run out in early May last year.

It was great to see such robust participation in our first survey. We plan to circulate our second survey (for the first half of 2014) in July for a report to follow later this year. 

While we hope the initial data is useful to those involved in early-stage financings, we anticipate that comparative analysis of future surveys will help us identify trends as they develop in the market for private capital.

In case you were curious, the survey respondent who won the Amazon gift card was a Angel investor who invested in a cleantech/biotechnology company durign the second half of last year.

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