More Than a Great Idea: How an Experienced Legal Partner Can Help Launch a Successful Startup More Than a Great Idea: How an Experienced Legal Partner Can Help Launch a Successful Startup

By Elizabeth Sigety
Every great startup starts with a great idea.
But, over the past three decades, after investing in countless emerging companies through the Delaware Crossing Investor Group, my angel network, and working with entrepreneurs and investors through my role as an attorney and Chair of Fox Rothschild’s Emerging Companies & Venture Capital practice, I’m confident in saying one thing: Success requires much, much more than just a great idea.
Founders and investors need the help of experienced legal advisers to develop a thriving business. That’s why I started Fox Launchpad, my firm’s virtual incubator and resource center for early-stage companies. It’s also the reason I developed our Startup Package, a flat-rate, discounted collection of legal services designed to position businesses for years of future success and help them establish the financial and legal structures investors expect.
Clients choose Fox Rothschild for many reasons, not the least of which is our deep understanding of what an investor is looking for in a startup. I am frequently shocked at the poor quality of investment documentation that founders present to Delaware Crossing when seeking investment. It is often clear that the companies lack experienced legal and financial support and that the lead investors have not engaged experienced counsel to review the documentation. It doesn’t take long for an experienced attorney looking at investment documentation to determine if the terms and documentation are within the realm of acceptability.
Companies that participate in Fox Launchpad rely on my team’s ability to get them ready for launch. We make sure founders understand the strategy and legal foundation that underpins their company. Once they graduate from the program, we enjoy working with them through all stages of growth and exit.
“There is a lot of new information coming at you when you start a business,” Kirthika Parmeswaran, CEO of Vital Start Health, recently told me. “They explain everything to you really well.”
Vital Start is a health care technology company that treats perinatal mood and anxiety disorders with the assistance of virtual and augmented reality technology. The company is launching a number of new services through reimbursements to provide equitable care for birthing persons and partners.
Kirthika and I met about six years ago at the Angel Venture Fair in Philadelphia. I got to know her as a person and saw the potential in her work. Like many of my clients, Kirthika was looking for more from her attorney than discounted hourly fees and some free forms. She wanted a partner she could trust.
“We don’t just have a legal relationship. We have a lifelong friendship,” said Piyush Sadana, Co-Founder & Chief Operating Officer of Ricovr, a medical device technology company that is developing a breakthrough portable diagnostic platform capable of detecting recent use of marijuana at workplace or roadside. The company’s product pipeline includes rapid testing for drugs, reproductive health and infectious diseases.
Piyush loves that we are able to serve as a one-stop shop for all of his company’s legal needs, from key employment agreements to intellectual property protection. Plus, he was able to tap into our collective experience when they solicited another round of financing.
“Fox Launchpad is the best investment you can make,” said Piyush. “Their expertise is priceless.”
The problem many cash-strapped founders face when they are first starting out is that they must do everything they can to save money. If the choice is between making payroll or calling their attorney to ask a simple question, they usually don’t pick up the phone.
That can create untold problems later, when investors start conducting due diligence or when the IRS comes calling. For that reason, the Fox Launchpad program is designed to encourage companies to call.
“They are always there for us,” said Justin Brach, CEO of both Solarquote, which sells solar panels to residential consumers, and Subcontractor Hub, which helps contractors streamline their sales process. “And we can trust them to handle whenever we throw their way.”
He said my team can foresee potential future problems and put in measures to protect his companies.
“They really understand the founder’s journey,” said Kirthika, of Vital Start. “From all angles.”
Vital Start, Ricovr, Solar Quote and Subcontractor Hub have all graduated from Fox Launchpad over the years. They have secured seed investments and are now preparing for their next steps.
We do everything we can to ensure our investor clients make wise decisions and help our startup clients successfully launch.  I want nothing more than to see them fly.
For more information about the Emerging Companies & Venture Capital practice of Fox Rothschild, including the Fox Launchpad or its Startup Package, please contact Elizabeth Sigety at 215.918.3554 or esigety@foxrothschild.com.
http://www.angelcapitalassocia....tion.org/blog/more-t

Post-Pandemic Changes in Investor Sentiment Post-Pandemic Changes in Investor Sentiment

The purpose of this data insight is to share with everyone the thoughts and feedback of leaders of angel groups about their own group and angel investing in general as we collectively came out of the COVID pandemic in 2021 compared to what angel groups feel about their own group and angel investing two years later in 2023. This historical or look back perspective is based on a survey conducted by the Angel Capital Association in Q1 and Q2 of 2021 compared to the same survey conduct two years later in 2023. As a result, we are able to understand and contrast the sentiments of angel groups in 2023 compared to 2021. It is important to look back and review actual data around angel group behavior in order to dispel theories or unsubstantiated assumptions people may have during these two important timeframes.
 
Let’s first look at the make-up of angel groups participating in both surveys. 68% of the groups are a network or a network with a sidecar fund. Another 18% are strictly a fund and the remaining 14% are of some other structure. In addition, 64% of angel groups have individual members making the investment in start-ups, while 32% of angel groups employ a fund or form a LLC or SPV for investment purposes. In addition, 33% prefer investing within a 150-mile radius of their base, while 38% of angel groups consider deals across North America and the remaining 29% will also consider deals outside of North America.
 
In the 2021 survey when asked to compare themselves to the previous twelve months people were obviously comparing themselves to 2020, the year in which almost everyone experienced lockdowns due to the COVID pandemic. We asked the question about their member behaviors compared to the previous 12 months and in the 2021 survey 42% indicated the membership meeting attendance had increased compared to only 30% who indicated that in the 2023 survey. The overall investment level in new deals by members increased by 42% in the 2021 survey compared to 31% in the 2023 survey when asked the same question. Investments in new deals by members was up 46% in the 2021 survey versus only up 25% in the 2023 survey compared to the previous year. Valuations on each deal in 2021 were up in approximately 59% versus the belief of angel groups only 24% of the deal valuations were up in 2023 compared to the previous year. Finally, when asked to describe the overall health of their angel group or fund in the 2021 survey, 90% of respondents indicated it was stable and/or actively growing and in 2023 the answer to that question was very similar at 88%. The response to this question in both surveys speaks to the overall health of angel groups during the pandemic lockdown and the macroeconomic conditions impacting all of us in 2023.
 
We also surveyed angel groups about their portfolio companies. The survey asked if their companies had increased employee headcount and revenue growth. As you can see on the chart below, we were somewhat surprised there are not significant differences when reviewing the responses in the 2021 and 2023 survey’s past 12-month data. Employee headcount did increase in 65% of portfolio companies as reported in the 2021 survey, however headcount also grew in 57% of portfolio companies in the 2023 survey data compared to the previous year. Again, no significant differences were noted in 2021 versus 2023 surveys when looking at the revenue in portfolio companies. In the former revenues grew in 75% of the portfolio companies compared to the previous year and in the latter headcount also grew in 70% of the portfolio companies. No surprise on the growth in headcount and revenues reported in 2021 versus the lockdown year of 2020, but given the much higher interest rates in 2023, higher inflation and consumer sentiment, we were surprised to see the figures reported in the 2023 responses.

Figure 1: How Have Your Portfolio Companies Changed in the Past 12 Months?



Source: Angel Capital Association's Investor Sentiment Survey
Looking forward instead of backwards we saw dramatic differences when asked questions around the overall investing landscape by the angel groups or funds as noted on the chart below. While there were not statistically large differences in deal flow coming to angel groups, we again saw large differences in the number of investments angel groups were expecting to invest in and the amount of dollars to be invested. Coming out of the pandemic in 2021, 56% of angel groups expected to increase their number of investments compared to the previous year while that number shrank to only 28% in 2023. Only 5% of angel groups anticipated a decrease in the number of investments in 2021 compared to the next 12 months, but that number rose to 16% in 2023. Total dollar investments were anticipated to increase by a very large 65% of surveyed angel groups in 2021 but that number was down significantly at only 31% in 2023. Only 5% of angel groups were forecasting dollars invested by angel groups to decrease in 2022 compared to 2021 but was dramatically different with 23% of angel groups in 2023 anticipating a decrease in dollars invested in that year compared to the following year. We believe economic conditions definitely impacted responses in the 2023 survey.

Figure 2: In The Next 12 Months What Do You Think Will Change?




Source: Angel Capital Association's Investor Sentiment Survey
Perhaps one of the largest differences year over year was in valuations as noted on the chart below. Back in 2021 coming off the pandemic challenges 67% of angel groups believed valuations were expected to increase. Yet looking at the response to the same question in 2023 only 9% believed valuations were likely to increase in the next 12 months. However, in 2023 a very large 68% believed valuations were likely to decrease year over year compared to the figure of only 8% of angel groups in 2021 anticipating a decrease in valuations. The number of angel groups anticipating no change was virtually the same at 25% in 2021 and 23% in 2023. We are all familiar with the challenges start-up companies were experiencing raising funds in 2023 due to many macroeconomic factors and the response to this question by angel groups reflects these macro issues.

Figure 3: In The Next 12 Months What Do You Think Will Happen to Company Valuations?



Source: Angel Capital Association's Investor Sentiment Survey

Differences in angel group portfolio companies were also noted when asked the question around status of their portfolio companies when compared to the previous year as noted in the chart below. In the 2021 survey 70% of angel groups believed the overall health of the portfolio companies was in better shape compared to the previous 12 months which is no surprise, while that number fell to 50% in 2023. Also of note is that in 2021 only 7% felt their portfolio companies were in worse shape, however that number rose by almost a factor of three to 19% in 2023.

Figure 4: Compared to 12 Months Ago, in General Our Portfolio Companies Are:



Source: Angel Capital Association's Investor Sentiment Survey

We have all seen venture capital funding decrease in 2023 compared to 2022. According to Pitchbook total venture funding in the United States was $166B in 2023 down 31% year over year. In addition, Pre-Seed/Seed venture funding was $16B in 2023 which was down 35% from the prior year. In the case of angel groups or angel funds a full 77% anticipated that dollars invested would increase year over year or stay the same which is a stark contrast to venture groups. Angel groups appear much more resilient and willing to continue to invest in start-ups despite many macroeconomic challenges. This data insight provides historical context of angel group sentiment in a very important timeframes the period when we were beginning to emerge out of the COVID pandemic in 2021 and provides a perspective of this time frame to the challenging year for other very different reasons of 2023. The Angel Capital Association is now collecting angel group investments for the 2023 period and the results and analysis of the data will be published in our upcoming ACA Angel Funders Report, the definitive source of angel investing trends in North America.
Key Takeaways:

Angel groups appear much more resilient and willing to continue to invest in start-ups despite many macroeconomic challenges

In contrast, most VCs pulled back their funding in 2023 both in terms of dollars invested and the number of companies which received that funding

There were higher expectations for lower valuations in the 2023 survey


Author:Rick Timmins, ACA Board Member, Chair, ACA Data Analytics Committee and Member, Central Texas Angel Network
http://www.angelcapitalassocia....tion.org/blog/post-p

Do Patents Affect Outcomes in Early Stage Investing? In conducting due diligence for early stage companies, we often consider a company’s portfolio of patents and/or patents pending. If the idea behind the company is compelling, most likely there will be competitors and we’d like to understand what (if any) barriers the company has to such competition. Patents are an obvious potential barrier.
But do they really matter? After all, some patents can be worked around, and others which are relevant end up having little value unless the company is prepared to defend them, and has the resources to do that. In a classic example, in the late 19th century, Westinghouse Electric had partnered with Nicholas Tesla who held the patents on AC electricity while Edison General Electric had the patents on DC electricity. When it became clear in 1890 that AC was the winner, GE (which was backed by JP Morgan) just ignored Westinghouse/Tesla’s patents and launched an AC electric business, knowing that GE had much deeper pockets (through JP Morgan) and Westinghouse lacked the resources to litigate. Westinghouse never recovered and GE prevailed in the marketplace.
To answer the question concerning the importance of patents, TCA Venture Group analyzed its 281 outcomes (Exits and Shutdowns) since being founded in 1997. While it is certainly possible to build a successful company without patents, the probability of an exit is higher with patents, and the probability increases with the number of patents in the portfolio. For TCA VG portfolio companies with more than 30 patents, the probability of an exit exceeded 80%:

Figure 1: Patents Increase Probability of Exits





Source: Pitchbook (for patent info) and Analysis of TCA Venture Group portfolio 1997-2023

Portfolios of over 51 patents also are much more likely to lead to an exit than to a shutdown – those large patent portfolios are in 13% of exits but only 3% of shutdowns. But the importance of patents goes beyond the likelihood of an exit. Turning to the magnitude of the exit in terms of the multiple on the amount invested, TCA VG’s experience shows a compelling relationship between larger portfolios of patents and the magnitude of the exit multiple:

Figure 2: Patent Portfolio Strength Drives Returns





Source: Pitchbook (for patent info) and Analysis of TCA Venture Group Exits and Shutdowns 1997-2023

This relationship between size of the patent portfolio and outcome multiples is consistent and compelling:
Figure 3: Larger Exit Multiples More Patent Intensive
 




Source: Pitchbook (for patent info) and Analysis of TCA Venture Group portfolio 1997-2023

Looking at this data the other way, a robust patent portfolio drives larger exit multiples:

Figure 4: Stronger Patent Portfolio Drives Larger Exit Multiples





Source: Pitchbook (for patent info) and Analysis of TCA Venture Group portfolio 1997-2023

The importance of patents as a means to drive higher exits is evident in TCA VG’s six largest exits – all of which had patents and four of the six had large patent portfolios:

Figure 5: TCA VG’s Best Exits All Had Patents





Source: Pitchbook (for patent info) and Analysis of TCA Venture Group portfolio 1997-2023


This all makes a lot of sense. The presence of a patent portfolio is a strong incentive for being acquired, and even in the case of a failing company is more likely to lead to some sale of the patents for at least some residual value (which is still an “Exit”). There may also be a relationship between healthy margins and free cash flow and the size of the patent portfolio, because companies with marginal financials may not be able to afford building a large patent portfolio; those healthy margins may be due to the barriers of patentable product differentiation, or it may be for other reasons.
Obviously, patents vary in importance across industry verticals, although there is not a direct correlation between patent intensity of an industry and the overall return TCA VG has realized in various industries. That overall return is driven by a few home runs (or lack thereof), so even a vertical industry light on patents such as financial services can have a high overall return of 24x because the big home run of Green Dot in prepaid credit cards beat out 17 other competitors through better execution instead of the strength of their one patent – and realized a 235x return! In Life Sciences (medical devices, pharma, medical diagnostics and digital health) exits are exceedingly rare without a healthy patent portfolio, In other industries such as consumer products, real estate and agriculture/food any lack of barriers to competition (in the form of patents) becomes a big factor in the low returns:

Figure 6: Patent Intensity by Vertical





Source: Pitchbook (for patent info) and Analysis of TCA Venture Group portfolio 1997-2023


Key Takeaways:

All other things being equal, patents increase a likelihood of an exit, and the size of the patent portfolio tends to also lead to larger exits. While it is certainly possible to achieve an attractive exit without patents, the odds of doing so are less.



Author: John Harbison, Chairman Emeritus of  TCA Venture Group (formerly Tech Coast Angels), ACA Board Member.
http://www.angelcapitalassocia....tion.org/blog/do-pat

Angel Capital Association’s Annual Summit is a Goldmine for Black Investors, Founders, and High Growth Startups Raising Capital The Angel Capital Association (ACA) Summit represents a beacon for black investors, founders, and high-growth startups. This event, heralded as the industry’s flagship, convenes a diverse community of new and experienced angel investors, business leaders, and entrepreneurial minds to explore critical topics and trends in angel investing. The summit offers an unparalleled opportunity for learning, networking, and investment discovery, specifically tailored to empower the black entrepreneurial ecosystem. Here are a few benefits that can be experienced by attending this dynamic event.

Networking Opportunities with Industry Leaders and Peers

The ACA Summit stands out as a prime networking event, offering black investors and founders the chance to engage with a wide range of industry experts and peers. The association boasts a membership of more than 15,000 angels, providing ample opportunity for attendees to connect, exchange ideas, and foster collaborations with angels worldwide. These interactions are crucial for developing best practices, sourcing investments, and understanding group operations.

Professional Development through Cutting-Edge Discussions

The summit’s agenda is packed with sessions led by all-star speakers, touching on hot industries, ecosystem partnerships, new perspectives, and investment basics. For black investors and founders, these sessions are a goldmine of information, offering insights into the latest trends, strategies for successful investing, and guidance on navigating the complexities of the startup ecosystem.

Access to Investment and Operational Best Practices

ACA provides its members with access to investment and angel group operational best practices. This is particularly beneficial for black investors and founders looking to enhance their understanding of the angel investing process, from due diligence and valuation to deal structuring. Additionally, the ACA’s Angel University pre-summit seminars offer deep dives into crucial topics like angel exit strategies and startup board management.

Pitch to Angel Investors at the Innovation Funders Showcase

Participating in Angel Capital Association’s Innovation Funders Showcase at their Annual Summit presents a pivotal opportunity for black founders and entrepreneurs. By showcasing their innovative ideas and startups to a diverse audience of angel investors, venture capitalists, and industry professionals, black founders gain unparalleled visibility and exposure, potentially unlocking access to crucial capital that may otherwise be challenging to obtain. This platform not only facilitates networking with potential investors but also offers invaluable feedback and validation from experienced industry experts. Additionally, participation provides an avenue for learning, education, and recognition, solidifying the credibility and reputation of black founders within the investment community, ultimately accelerating the growth and success of their startups.

Promoting Diversity and Inclusion in Angel Investing

The ACA is committed to promoting diversity and inclusion within the angel investing community. Attending the summit provides black investors and founders a platform to share their unique perspectives, contribute to the conversation around diversity in investing, and influence the direction of future ACA initiatives focused on fostering a more inclusive ecosystem.

Exploring the Latest in Tech and Innovation

The ACA Summit is not just about investing; it’s also a celebration of innovation. Attendees have the chance to explore the latest advancements in various sectors, including software, healthcare, and more. For black founders, this represents an invaluable opportunity to showcase their startups, attract investment, and gain insights into accelerating their company’s growth.

Engaging with Public Policy and Advocacy Efforts

The ACA actively represents angel investors in public policy discussions, ensuring that the voices of its members are heard in crucial regulatory debates. For black investors, participation in these discussions is an opportunity to advocate for policies that support minority-owned startups and foster an equitable investing landscape.

Angel Capital Association is a Catalyst for Growth in the Black Entrepreneurial Ecosystem

The Angel Capital Association’s Annual Summit is more than just an event; it’s a catalyst for growth, learning, and community building within the black entrepreneurial ecosystem. By offering unparalleled access to resources, networking opportunities, and a platform for advocacy, the ACA Summit is an essential engagement for black investors and founders aiming to elevate their impact in the world of angel investing and beyond. Whether you’re a seasoned investor or an emerging startup founder, the summit promises valuable insights, connections, and opportunities tailored to advance your ventures and contribute to a more diverse, inclusive, and vibrant entrepreneurial landscape.
Author: Brittni Abiolu
Brittni is the founder and managing director of VentureHue. She is an entrepreneur who supports entrepreneurs! She is also a capital readiness coach, search engine optimization content strategist, and angel investor with nearly two decades of experience helping entrepreneurs obtain capital, acquire new customers, and get connected to the resources they need to build thriving businesses.
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ACA Proudly Welcomes Dr. Charu Ramanathan as Keynote at the ACA Summit of Angel Investing The ACA and angel investing community are thrilled to welcome Dr. Charu Ramanathan as a keynote speaker to the Summit of Angel Investing in Columbus, OH. Dr. Ramanathan is the Founding Managing Partner and Chief Investment Officer of Black Star Fund, an early-stage venture capital fund.
Dr. Ramanathan is a serial entrepreneur driven by a passion for leveraging technology to advance health equity and access. Currently serving as the co-founder and CEO of Vitalxchange, she leads a digital parenting platform dedicated to fostering health equity from infancy, empowering families to nurture healthy and confident children. Concurrently, Dr. Ramanathan holds the role of co-founder and Chairman of the Board at Lokyata Inc., where she advocates for fair lending practices, promoting financial inclusion both domestically and internationally.
In May, Dr. Ramanathan will join the ACA Summit of Angel Investing, three days of quality content, interactive discussions and vibrant networking to elevate your angel investing experience. Valuable to the new or experienced investor, angel group leader or part of the broader community supporting entrepreneurs and early-stage investments, attendees will learn the latest on trending topics and meet new people, all to help improve your outcomes.  
Beyond her entrepreneurial pursuits, Dr. Ramanathan actively engages as an angel investor in ventures driving social impact. Her commitment to technology and humanity has earned her numerous accolades, including recognition in Crain’s 40 under 40, TiE Immigrant Entrepreneur, American Red Cross Hero, and Smart Business 50. With a prolific portfolio holding over 25 patents, Dr. Ramanathan continues to shape the landscape of healthcare innovation with her visionary leadership and unwavering dedication to improving lives worldwide.
Previously, Dr. Ramanathan founded CardioInsight, a pioneering company specializing in noninvasive cardiac imaging systems. Originating from her doctoral research at Case Western Reserve University, she guided CardioInsight through successive growth stages culminating in its acquisition by Medtronic in 2015. She also serves as a strategic advisor to CareLog, an innovative startup employing AI for accessible diagnosis of heart failure and other critical cardiac conditions.
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