Emo Storm Trooper

via Flickr

Relationships Can Be Based On Money

by Micah on November 7th

Yesterday, I wrote a post about the perfect woman for me which became a list of the features and qualities I consider to be important. In January of this year, when I sold Current Wisdom, I began to explore becoming an angel investor. I figured I had some cash, and it would be a great way to get me started on my path to one day managing a fund or getting a better handle on the fund raising process.

Over the better course of 2007 I have both met a lot of investment opportunities, entrepreneurs, angel and institutional investors.

Over that time period, I developed a short list of 5 requirements I judge every investment opportunity against:

  • The company has to have a real leader/CEO. If its a first time CEO, do I think s/he can handle the rigors of building a business.

One of the advanced degrees I never finished was in the study of leadership. There are many studies and theories about what makes a great CEO. We studied business, military, sports and other types of leadership. In addition, as I grew in my career, I began to realize the qualities that make a great CEO:

  1. Trust. They engender trust, not only in themselves, but in the ability of the company to accomplish anything. Through transference, each member of the team trusts in each other, realizing that together they are stronger than as individuals.
  2. Confidence. My mom calls me arrogant. I call myself confident. The difference? I can back up my claims. So should a top CEO. They need to be bold and decisive.

  3. Risk Aware. A CEO should take measured risks that have a high probability of success or education. Take ServiceMagic, I often described Rodney and Mike, the co-ceos (yes they can work sometimes) as building ServiceMagic on failure. But, those failures were measures and designed to educate, which led to greater successes.

  4. Presence/Personality. The intangible that make people want to follow them. I recently got into a discussion with a friend about leadership. She considered herself a leader, which in many regards she was, but I explained you can only be a leader if people are willing to follow, you cannot self appoint yourself leader. Many times in a startup the founder becomes the defacto CEO. So the question is, as the company grows beyond a couple of people, do you have “it” that will engender people to follow you?
  • The company has to have a real revenue path / exit strategy. Basically, “where is the money?”

I am a money guy. I love business development, the creation of strategic relationships, revenue models and knowing that the money I am spending I made. There is nothing as satisfying as spending a dollar someone else paid you for your product, service or expertise. It might be the single most gratifying/rewarding/affirming experience I know in business.

Plus, I am not wash with cash. I cannot afford many mistakes in my investments, so I need to see the future of the business, not be enamored of the product/service/people.

  • I need to be able to provide support of the company, either through people I know or advice I can give or work I can perform.

I am a hands on guy. I recently began working at Lijit as their (yes, Todd, “scary”) VP of Business Development. I joked with Todd Vernon, their CEO, that my title should be VP of Introductions and Favors. Thats what I do. I help out friends. Recently, I ran into Brad Feld, one of the investors in Lijit, and he told me to think of him as a Rolodex. I want to be able to provide the same support to any startup I invest in.

Also, this means that I will only invest in companies that I can be helpful. If you are looking for investment, and your company doesnt touch online marketing, search marketing, publishing, or anything else that I have a connection to or interest in, then you are barking up the wrong tree.

  • No convertible debt, its a no win for the investor in that if you make money or a larger round I get my money back with a little interest, and if you are failing I get worthless stock.

This is just something I believe in as I have begun to understand term sheets and financial instruments. If a startup is not willing to give me a piece of their company for my investment and involvement, they clearly want me for my money, and that causes Rule #3 to fail.

  • The other investors need to be quality, and I need to trust their judgment.

I really am new to the concept of angel investment. Some angels are very open about the fact they are angels, and other are not. But, I do know a fair number of different level of investors, from David Cohen to Todd Vernon to Seth Levine to Brad Feld, and I consider each of these people mentors in different ways (I havent had a ton of interaction with Brad, so interestingly, most of his mentorship comes from his writing, speaking engagements and through others. I hope to see that become more personal as I become a bigger part of the Boulder “Tech Scene.”) So, the other investors are important to me. If one of the four above said I should invest in something, I am going to listen. The converse is also true.

When I shared this list with one of my mentors, he indicated that I missed one:

  • You dont want to feel like a chump if the startup or investment goes South.

This is actually pretty important. If I dont stick to my guns with the 5 above rules, then 6 will always be true. It removes the emotion from investing which can only be good.

So, for all those startups out there that are looking to pitch the smaller investor, I would hazard to guess that most investors have rules similar to the ones I listed above. Show how you pass each one and, if you pitch me, I will let you know how you fare against those rules. Fail one, and I am probably not going to invest. Fail two, and I am 100% out.

investing Add to del.icio.us  Digg This

Viewing 6 Comments

Trackbacks

blog comments powered by Disqus