Chicago Startup Scene, and Angel Financing WestLoopVentures.com

1. Chicago Startup Scene
The City That Works is A
Startup Hub

2. Jeff Carter
Thought leader. Co-Founded Hyde Park Angels in April 2007 (Angel #1),
the Midwest’s leading angel group. Helped start other angel groups.
Successful. Has made over 19 successful early stage investments, many getting follow
on rounds.
Highly competitive. Works. Knows how to win. Self employed since 1986.
Respected. Elected by peers to CME Board and ran several committees.
Strategic Planning and Budget Committee
High integrity. Tells you straight, means what he says and follows through.
BS University of Illinois and Chicago Booth MBA;
Member of the National World War Two Museum Board
LinkedIn.com/in/jeffreyrcarter/en
blogs every day at PointsAndFigures.com
@pointsnfigures on Twitter

3. Table of Contents
I. Startups, Society, and Trends
II. Current Conditions in Midwest
III.Where and When to Invest
IV.What Makes a Great Investment?
V. What Does an Angel Do?
VI.Angel Math, Angel Mistakes
VII.Crowdfunding
VIII.What You Can Do
IX.Q+A

4. “Startups are transforming our
society. Over the past 100 years,
we’ve gone from an industrial era
to a post information era where
the network is rapidly disrupting
the hierarchy and transforming
the way we work and live.”
-Brad Feld, Foundry Group
Boulder, CO
Changing Society
Changing Technology

5. Startups Seem Cool

6. When Startups Start Out

7. When Startups Are Successful

8. Networks not Hierarchies
Organizations operate from top down. Software and technology enables them to be
flatter, fleeter, and first.
Everything Will Be Unbundled
Organizations that are generalists will be disintermediated by focused competitors that
engage specialized business silos
Everyone is a Node on the Network
Mobile technology makes everyone a node on the network they operate in.
Software is Eating the World
The way we produce, interact and transact enabling flatter, customized chains of
distribution and peer to peer networks.
“What’s different today is that we are seeing on a daily basis
revolutionary new ideas, devices, and form factors, not evolutionary
enhancements.”-Arvind Sodhani Intel Capital in the WSJ (Jan 1. 2014)
The MegaTrends

9. Government not equipped to keep up
Technological and social change is happening so fast, government bureaucracy is too
large and inefficient to keep pace. 63% of the federal budget goes to entitlements
today. (Uber, Airbnb)
Rise of the Solopreneur
Mobile technology makes everyone a node on the network they operate in. This has
deep ramifications for the way we work, where we work, when we work, and how we
work. It also has implications to how we raise and educate our children.
(Food Trucks, Independent Consultants, RIAs)
Bitcoin and Mobile Payments
new technology is mobile enabled, closes loopholes and strings in internet technology,
and provides a searchable, online, transparent accountability function
The Minor Trends

10. Solopreneurs

11. Bifurcation of Population

12. Rise of Bitcoin

13. It’s a New Day in VC
Transformation of tech means
Startups access global markets 24/7
• Mobile/Tablet exploding
• 1.5 billion smartphones were sold last year
• Everyone socially connected through digital
• Credit cards designed for “click to purchase”
• ApplePay, iBeacon, Bitcoin

14. Technology Has Evolved

15. Cost to Start Up Dropping
More companies with more opportunity to grow are starting up

16. It’s Not 1999 Anymore

17. Faster Bigger Better
Everyone connected all the time. Bandwidth and speed are getting
exponentially faster allowing for more transaction volume.

18. Speed + Mobile
Mobile Subscribers UP, Telecommunication Network Speed UP

19. Sales In Mobile Growing

20. Best Performing VC Not in SV
• Spark Capital (Boston)
• Union Square Ventures (New York)
• Foundry Group (Boulder)
• Greycroft (New York, LA)
• IA Ventures (New York)
• First Mark Capital (New York)
• First Round Capital (New York)
• It’s time for a revolution in the Midwest

21. Midwest Growing
Midwest saw a 101% jump in VC funding from 2013 to 2014. For comparison,
Silicon Valley saw an 85% jump. NYC, 59%.
Last year the Midwest saw over $6 billion in exits

22. Evidence of
Success
• In 2013, Chicago startups raised over
$1B in venture capital, up 169% from
2012; In 2014 $1.6B
• 78 companies raised $1M in early stage
capital
• Chicago Named #7 Best Startup Hub In
World in 2015 (#5 in US)

23. Top accelerators in the US are in the Midwest
TechStars, Capital Innovators, Gener8tor, Polsky Center
Top Universities and Engineering programs in the Midwest
Chicago, Northwestern, Illinois, Wisconsin, Michigan, Purdue
We Got Game

24. • Lower valuations than both coasts
• Same upside potential
• Cheaper labor and physical plant costs
• Access to Fortune 1000 customers locally
Great Value

25. 35 Total Investments: 2007(1), 2008(2), 2009 (1),
2010 (5), 2011(5), 2012(7), 2013(6), 2014(3), 2015 (5)
In 2013 HPA did 6 new investments and 10 follow on
rounds with 1 exit
Invested over $13M and created over 500+ jobs.
Now has 111 angels and growing to 150.
Track Record: 3 failures, 5 exits and the the rest
operating

26. 21 Total Investments: 2005(1),
2007(1), 2008(2) 2009 (1), 2010 (3),
2011(2), 2012(3), 2013(3) 2014(5)
(See all at WestLoopVentures.com)
2 exits, 4 no-exit, 15 operating (exits
were 3.7x 49%IRR, 1.37x 19.8% IRR)
Jeff Carter
Personal Track Record

27. • Stock markets are at all time highs.
• Investing in Real Estate is risky at today’s prices
• Private Equity is risky too!
• Central Banks have artificially pushed interest rates to
all time lows. Rate increases are a matter of time.
• During deflationary or inflationary times,
traditional assets don’t perform
Venture Capital
is diversification

28. • 765 funds raised $266 Billion in 2014
(too many funds chasing to few deals)
• Interest rates will rise, hurting returns and
opportunities
• Banks aren’t lending for leveraged deals
• Tax reform; new debt isn’t deductible in Lee-Rubio
bill
• Private equity can’t afford to buy later stage startup
companies like Uber
• Dow=18,000, public companies too expensive to buy
and leverage
Private Equity is Dead

29. Real Estate Is Dead Too
Interest Rates will rise hurting property values
Real Estate had a huge recovery from 2008 lows already
Governments under pressure and might raise property taxes

30. Late Stage VC=similar risks with less return
• Later stage VC valuations are frothy.
• Too much money chasing later stage
• Later stage VC deals are harder to get into
with much larger check sizes
It’s Smart to Be Early

31. “Even􏰀 more􏰀 striking􏰀 is􏰀 the􏰀 frequency􏰀 of􏰀 winners􏰀
across􏰀 different􏰀 fund􏰀 and􏰀 deal􏰀 sizes.􏰀 􏰀 Deals􏰀 in􏰀
smaller􏰀 funds􏰀 and with 􏰀smaller􏰀 check 􏰀sizes􏰀 were 􏰀two
􏰀to 􏰀three 􏰀times􏰀 more􏰀 likely􏰀 to􏰀 produce􏰀 “venture􏰀
returns”—greater􏰀 than􏰀 a􏰀 3x􏰀 TVM— than 􏰀deals􏰀 in􏰀
larger􏰀 funds. 􏰀􏰀􏰀 “
It Pays To Be Early Too
Source: StepStone Venture 􏰀Capital Research Report June 2013: 􏰀􏰀The 􏰀 Real 􏰀Options 􏰀of 􏰀Silicon 􏰀Va

32. When Do
Successful Investors Invest?

33. • Option value of investing
• Each round similar to a call option
• Keep investing in successful companies
• Maximize value of capital
Early stage investing has
better risk/reward ratios

34. Access to Capital is Easier
Angel List, Seed Invest, Kickstarter, Funders Club (Unbundling of
Everything)
Access to Market is Easier
Etsy and several democratized online platforms, Amazon Ebooks,
Streaming Television creating new networks. (Network Beats Hierarchy)
Get Big and Grow Value in a Hurry!
Twitter, Tumblr, Braintree, all started in
2007 (Everyone a node on a network)
Easier To Grow

35. Billion Dollar Companies
More private companies valued at $1 billion or more than ever before

36. • Federal and State Income Tax Exemptions
• No tax on gains up to $10M or 10x return
• Includes state tax
• Must be a C corporation
• Have less than $50M in assets on initial investment
• 5 year holding period
Massive Tax Advantages with
Qualified Small Business Stock
*Consult tax professional for individual interpretation

37. Sources of Deal Flow
Support Resources
• BuiltinChicago.org
• Chicago Innovation Mentors
• Office Hours
• Starter League
• Ms Tech
• Junto Institute
Tech CoWork Spaces
• 1871
• MatterChicago
• TechNexus
• WeWork
• Nextspace
• Catapult Chicago
• Chicago Innovation Exchange
• Catalyze Chicago
• Insight PD
University Programs
• Polsky Center (Chicago Booth)
• Levy Center (Northwestern)
• Illinois Launch (Univ of IL)
• Liautaud Center (UIC)
• Knapp Center (IIT)
• Gigot Center (ND)
• Coleman Center (DePaul)
• Weinert Center (Wisconsin)
Angel Groups
• Hyde Park Angels
• Cornerstone Angels
• West Suburban Angels
• Irish Angels
• TiE Midwest
• Arch Angels
• MCOIN
Accelerators/Incubat
ors
• TechStars
• Impact Engine
• The Bunker
• Family Farmed
• Elm Spring
• Leap Innovations
• Blue 1647
• UI Labs
• REach

38. Entrepreneur community is growing from these exits. Experienced entrepreneurs
are starting new companies.
Last year, $1.6B was raised by Chicago startups, with over $6B in exits
$800 Million by PayPal. Company founded in 2007, exit 2013
$350 Million by Nordstrom. Company founded in 2009, exit in 2014
IPO $2 Billion. Company founded 2006, exit in 2013
IPO $12.8 Billion. Company founded 2007, exit in 2012
Acquired by SAP, $1B+. Founded 1999, exit in 2014
Recent Chicago Exits

39. What Makes A Good
Investment?

40. Would You Have Invested?
• Service that lets you profit from unused office space (2012
Desktimeapp.com)
• Company that creates memorable experiences for customers and
employees (2012, KapowEvents.com)
• Company that does performance reviews in 15 minutes (2014
JuvodHR.com)
• Company that makes it easy to donate money? (2014, PublicGood.com)
• Social network for math and science nerds (founded 2012, Brilliant.org)
• Company that provides free stock market charts (2008, Ycharts.com)
• Company that finds you discounted parking (2007 ParkWhiz.com, 2011
SpotHero.com)
• Company that uses an algorithm to find social sentiment index on
companies and correlate to stock performance(2012, Likefolio.com)
• Company that manages public grants and employs big data analytics and
automates compliance (2013 StreamLinkSoftware.com)
• Company that creates a “risk number” for clients (2012, Riskalyze.com)

41. Typical Angel Deals
• Average Valuation is $2-5M pre-money. But
coastal valuations much higher
• Most seed rounds are between $300k and
$1M depending on the business (Average is
$400k)
• Seed round should be 12-18 mo runway
(company is pre revenue, pre product)
• Angels looking for return. Average return for
all angel deals is around 27% IRR
• Typical deal is 7-10 years in length.
• Angels should look for 30x

42. Typical Venture Deal
• Round much larger, $10 Million+ pre-money
valuation Most VCs get involved at Series B
or later. Some in Series A; Few do seed
• Demand a Board Seat
• Maybe, but not usually co-investors
• Money isn’t about runway, but about
growth
• VC looking for outsized ROI (Home Run
Theory)
• Might replace existing management team

43. Invest Money
Create Customers, Connections
Mentor and Advise
Help Find Talent for Firm
Create Next Rounds of Financing
Create Possible Exits
Angels typically don’t run companies
What An Angel Does

44. What Do Angels Look For?
• Solve a pain point with a Big Market
• Betting on the Jockey (initial team)
• Does the entrepreneur want to build a
blow out business or lifestyle business?
• Evidence the product works (no ideas,
actual products) and there is demand
(customers)
• Disruption-product should be a game
changer in some way
• Path to Exit (target 30x)

45. Industries Angels Like
• Financial Services (Riskalyze.com, Ycharts.com)
• Consumer Products (SimpleMills.com)
• Health Care, Medical Devices
• IT/Digital Media
• SaaS Businesses (Desktimeapp.com)
• Transportation, Logistics (Supply-Vision.com)
• Chemicals
• Niche Manufacturing (UICO.com, NuCurrent.com)

46. Industries Angels
Don’t Like
• Medical Drugs
• Energy (Gas, Solar, Wind, Drilling)
• Industries that Rely on Selling to Govt
• Industries that need huge start up costs
(Stock Exchanges)

47. Economic Turmoil Affects
Angels
• Uncertainty, wallets stay closed
• Makes Them avoid industries (real
estate)
• Psychological effects
• Governments create uncertainty

48. Angel Math
Assume $1M invested evenly in 10 Deals
Assume you exit all in 6 years
1.25^6=3.8xROI Goal
Typical portfolio:
5=0x They will bust, you lose
2=1x The Zombie
2=3x The Singles
1=30x The Angel Home Run
$50,000 in Uber returned $80M

49. More Angel Math
Angels need to invest in Gazelles, not Unicorns
Gazelles are 30x
Invest in a 3M post valuation company, sells for
90M you get 30x. Most angel deals exit at
20M-60M
Unicorns are Billion dollar plus firms. There
aren’t many of them, although they are more
prevalent

50. Top 11 Angel Mistakes
1. Investing in the first deal you see
2. Not doing enough or not doing right due diligence
3. Investing outside of domain expertise
4. Investing at too high a valuation
5. Investing in an uncapped convertible note
6. Signing docs without an experienced lawyer
7. Not reserving additional capital for next rounds
8. Investing in fewer than 20 deals
9. No long term commitment
10.Dragging out investment process unnecessarily
11.Junking up term sheets with dumb terms

51. CrowdFunding Deals
1.Are you putting enough capital to work?
2.Do you have a material effect on the company?
3.Can you get access to company reports?
4.Are you getting common or preferred equity?
5.Angels do better hunting as a Wolfpack
6.Spray and Pray only works in Vegas
There has been plenty written on the pros to crowdfunding
and I am not opposed to it. But, there are risks

52. Want Exposure to Early Stage
Without Doing the Work?
• Invest in a fund
WHY?
• Learning curve effects
• Portfolio
• YOUR TIME
• TIME

53. Confidential Offering Memorandum
WEST LOOP VENTURES, LLC January, 2015
JEFF CARTER WEST LOOP VENTURES, LLC 230
WEST SUPERIOR, CHICAGO, IL 60654
JEFF@WESTLOOPVENTURES.COM (312) 203-
5270
QB148933.0000221641392.7
THIS CONFIDENTIAL OFFERING MEMORANDUM
(“MEMORANDUM”) HAS BEEN PREPARED
SOLELY FOR THE BENEFIT OF INVESTORS
INTERESTED IN THE PROPOSED OFFERING OF
MEMBERSHIP INTERESTS (THE “SECURITIES”) IN
WEST LOOP VENTURES, LLC (THE “COMPANY”)
AND CONSTITUTES AN OFFER TO AN OFFEREE
ONLY IF THE NAME OF SUCH OFFEREE APPEARS
IN THE APPROPRIATE SPACE ON THE COVER
HEREOF. BY ACCEPTING THIS MEMORANDUM,
THE RECIPIENT AGREES TO MAINTAIN IN STRICT
CONFIDENCE THE CONTENTS HEREOF AND TO
UTILIZE THE INFORMATION CONTAINED HEREIN
SOLELY FOR THE PURPOSE OF EVALUATING A
POTENTIAL INVESTMENT IN THE SECURITIES.
ANY DISCLOSURE OF THE CONTENTS OF THIS
MEMORANDUM, WHETHER IN WHOLE OR IN
To Get a Formal PPM
Please contact Jeff Carter at
312-203-5270 or jeff@westloopventures.com
or
Attorney Kathleen Swan, Quarles and Brady
(312) 715-5015 kathleen.swan@quarles.com
Thanks for your time. Would love to have you
involved

54. What Can You Do to Participate?
1. Become A Customer of A Startup-Even if it means
taking some risk
2. Make an Introduction to a Potential Customer
3. Mentor Entrepreneurs for FREE
4. Give Startups Feedback
5. Talk about the local Startup Community with your
friends, neighbors and work associates
6. Invest via a local early stage VC fund or angel group
7. Encourage local government to support startups by
becoming a customer and easing regulations