MTB_Venture_Camp_2013In Milan, at the Mind the Bridge Global Angel Forum, I had the chance to interview Lydia Schroter. She is an accredited angel Investor on the East Coast (ember of the Golden Seeds and Cherrystone Angel Group in US) and provides mentoring to start-up ventures in internet, e-marketing, fashion, high-tech, and consumer product and service sectors.

Q: Lydia, what’s changing in the US investment industry? 

A: On July 10, 2013, the Securities and Exchange Commission (“SEC”) adopted final rules eliminating a longstanding ban on the use of general solicitations and advertising in private offerings conducted under Rule 506 of Regulation D. Rule 506 is a widely-used safe harbor that allows issuers to offer securities to U.S. investors without registering those securities with the SEC. Under new Rule 506(c), issuers such as privately-held companies, hedge funds and private equity funds will be permitted to advertise private offerings to the public through social media, television and other forms of mass communication. Issuers may alternatively rely on existing Rule 506(b) for private offerings, which will continue to prohibit general solicitations and advertisements. Rule 506(c) takes effect on September 23, 2013.

Q: What are the hottest areas that are attracting investment?

A: According to halo report, Internet sector remains the hottest area followed by healthcare and mobile deals.

Q: How is evolving the investment community on the East Coast? Which are the most relevant areas?

A: East Cost has a strong and effective angel investment ecosystem which includes incubators, accelerators, angel groups, universities R&D labs.  In term of deal size and invested dollar, the East coast represented  42.4% and 43.6%, respectively, of total US angel investment.  For the half of 2013, total US angel deals and invested dollar were 379 deals and 461million, respectively.

Q: What’s your evaluation of the current economic situation and its impact on the venture capital and early stage investments?

A: Economist forecast that the latter part of 2013 economic condition may improve, however less exit market opportunities through IPO or M&A means less investable cash for many long term investors.  To raise necessary capital, many startup companies must do good job meeting investment criteria such as strong team, scalable business, milestones, stronger competitive edge. 

Q: How do you see the crowd funding phenomena? How is going to impact the venture capital industry?

A: This is yet to be tested.   Many think that crowd funding may not have a significant impact on angel  investment  deal flow.

Q: What are the most frequent mistakes startups do?

  1. Lack of understanding in market size and who else are playing in the same field in local, national, or even in global setting.
  2. Highly technical founders with little business and financial understanding.  Example- valuation, term sheets, capital structure and ownership- unable to speak business and financial lingo
  3. Strong team vs. sole leader of the organization;  “it is about me not about the team”

Q: What are the most frequent mistakes angels investors do?

  1. Valuing startup companies
  2. Deal structuring
  3. Less rigorous due diligence

Q: What are the most difficult things to be evaluated while investing in early stage startups?

A: Surely the quality of management and their ability to grow the company at various stages.

Q: What are the financial returns you got investing in startups? Which is the best deal ever?

Best deal was investing in a high tech start- up firm.  The investment returned 40x over 7 years.

Q: What’s your main message you’d like to convey to angel and seed investors?

A: Investors should understand risk profile of this asset class.  Angel investment class reports a high percentage of failure and highly illiquid.  To minimize financial risk, investors should apply investment discipline including allocation, portfolio build up and diversification.

However, us angel investors are motivated by the following factors;
1. Help entrepreneurs with financial support as well as engagement using their skills, experiences to help build a business
2. Give back to start up community
3. Network and learning experiences

Q: And to startuppers?

Here are my main recomendations  to start up founders:
1. Be clear of your aspiration: create value vs. high income earner
2. Get exposed and stay in the game
3. Builds strong teams
4.  Understand your market place and competitive landscape
5.  Get a mentor and find the right investor who can right you a check and to help your business to grow