Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups

PRAISE FOR ANGEL INVESTING The world of entrepreneurial startups is where the most exciting and creative action is happening in todays business world, which is why I was a strong supporter of the JOBS Act of 2012. No wonder millions of people are wondering how they can get involved as investors. Theres no better place to start than by reading David S. Roses Angel Investing. U.S. SENATOR CHARLES E. SCHUMER, Senate Finance Committee From the best methods for finding and picking tomorrows big winners to proven techniques for adding value to any business you invest in, Angel Investing provides readers with everything they need to know to get started in this fascinating, funand lucrativebusiness arena. DAVID BACH, #1 New York Times bestselling author of The Automatic Millionaire and Start Late Finish Rich, Angel Investor As an angel investor and a long–time fan of David S. Rose, I was delighted to hear he finally captured his wit and wisdom in the pages of a book. Davids witty stories and angel investing principles as well as his unsurpassed knowledge of his field are teaching me so much more about investing than Ive learned over the years doing it! BARBARA CORCORAN, Real Estate Mogul, Shark Tank star, Angel Investor This is the most comprehensive and readable guide to angel investing ever written. The chapter on valuation and expectations lays out a clear framework for understanding one of the least well–known pitfalls in the angel world. And its emphasis on creating a win–win relationship with the entrepreneur is at the heart of being a long–term successful angeland continuing to see the best deal flow. I recommend this book to anyone even thinking about making or receiving angel investments. HOWARD L. MORGAN, Founding Partner, First Round Capital Angel Investing is an engaging, easy read, full of real stories and hard numbers, actual cases and a whole lot of good advice. David S. Rose brings tons of real–world knowledge to the subject that makes this required reading for every new angel. TIM BERRY, Author of Business Plan Pro , Entrepreneur, Angel Investor Anyone with a checkbook can be an angel investor, but it takes insight to do it well. David S. Rose has written a terrific new book that will help would–be angels make money, rather than lose it. From explaining the value of diversification, to tips on evaluating deals, to offering up plans to attract good deals, Angel Investing will help you move from a money–losing amateur to a money–making professional angel. And if youre an entrepreneur looking for angel money, you should read this book too. It will help you understand what knowledgeable angels are seeking and how they will evaluate you. SCOTT SHANE, author of Fools Gold? The Truth Behind Angel Investing in America

Foreword Reid Hoffman xv Introduction: How I Became An Angel Investor xvii Part I The Basics of Angel Investing 1 1 The 25 Percent Annual Return:Why Everyone with Six Figures to Invest Should Consider Angel Investing 3 2 Plus, It’s Really Fun! The Nonfinancial Rewards of Being an Angel 23 3 The Portfolio Theory of Angel Investing: Why Every Angel Needs to Invest in at Least 20 Companies 37 4 The Financial Life of a Startup: Where Angels Fit in the Big Financing Picture 47 Part II The Nuts and Bolts 55 5 Develop Your Deal Flow: Sourcing and Identifying High–Potential Opportunities 57 6 Bet the Jockey, Not the Horse: Evaluating the Entrepreneur and Picking the Right One to Back 67 7 Here Comes the Pitch: Listening to the Story Does It Make Sense for Your Portfolio? 77 8 Look Under the Hood and Lead a Deal: Coordinating Due Diligence and Running the Show 87 9 Valuations and Expectations: Discovering the Secret Economics of the Angels 93 10 Investment Rounds and Their Forms: Common Stock, Convertible Notes, or Preferred Stock? 109 11 The Art of the Angel Deal: Negotiating a Win/Win Relationship with Your Entrepreneur 121 12 Term Sheets and Closing: Trust Everyone…but Cut the Cards Anyway 127 13 After the Investment: Managing Your Portfolio and Adding Value as an Active Angel 133 14 Exits and Other Unicorns: Getting Your Money Out Makes All Things Right 147 Part III Your Place in the World of Angels 159 15 The Entrepreneurship Financing Ecosystem: Grants, Venture Capital, Accelerators, and Other Players 161 16 Building Your Angelic Reputation: Getting the Best Deals to Come to You 175 17 Joining an Angel Group: Increasing Your Opportunities and Reducing Your Risks 179 18 Impact Investing: DoingWell While Doing Good 189 19 Sit Back and Let Someone Else Do theWork: Investing in Startups through Seed Funds and Venture Funds 195 20 Crowdfunding and the Global Revolution: Angel Investing for Everyone 199 Appendixes A Angel Screening and ValuationWorksheet 205 B Angel Investment Due Diligence Checklist 209 C Gust Convertible Note Term Sheet 215 D Gust Series Seed Term Sheet 223 E Gust Revenue–Backed Note Term Sheet 237 F International Angel Investor Federations 243 G Major Regional Angel Groups 245 H Angel Investing Blogs and Resources 249 Glossary 253 Acknowledgments 265 Index 271

DAVID S. ROSE is a serial entrepreneur, Inc 500 CEO and one of the worlds most active angel investors. Described by Forbes as New Yorks Archangel, by BusinessWeek as a world conquering entrepreneur, and by Red Herring as patriarch of Silicon Alley, David has founded or funded over 90 high tech companies. He is the founder and CEO of Gust, the international collaboration platform for startup financing used by over 50,000 accredited angel investors, 1000 angel groups and venture capital funds, and 250,000 entrepreneurs. Gust received the SIIA CODiE Award for Best Collaboration Solution in both 2012 and 2013, as well as the 2012 SWIFT/Innotribe Award as the worlds most innovative financial technology company. David is also Managing Partner of Rose Tech Ventures, an early stage angel fund; Founder and Chairman Emeritus of New York Angels, the most active angel group in America; and Associate Founder and Founding Track Chair for Finance, Entrepreneurship and Economics at Singularity University, the Google/NASA–sponsored post–graduate program in exponential technologies. A native New Yorker, David has a BA from Yale University, an MBA in Finance from Columbia Business School, and a D. Eng. h.c. from Stevens Institute of Technology.