By guest author Irina Patterson
I recently talked with Nicola Corzine, deal manager and partner at the Band of Angels, Silicon Valley’s oldest seed funding organization. The Band of Angels is, I should say, a passionate and dedicated group of more than 120 former and current high-tech executives who are interested in investing their time and money into new, cutting-edge, startup companies. They have seeded over 200 companies with more than forty profitable M&A exits and nine Nasdaq IPOs.
Irina: Hi Nicola, please tell us a few words about yourself.
Nicola: I was born in England and spent the first few years of my life there. Then my father, who was actually an entrepreneur, moved to California, and I got to come over here. Although I was hoping to live closer to Disney World, it turned out not to be the case [laughs]. I have been working with entrepreneurs all my life, with Band of Angels for the past seven years.
Irina: Nicola, first let me say that I’ve spent some time on your site, and I found it to be one of the most informative and well presented angel websites. As a former tech PR executive, I can really appreciate a clear and detailed presentation. So, we are here to talk about the Acorn Fund, your new seed financing fund within the Band of Angels. Could you please tell us why and how it came into existence?
Nicola: Yes, sure. The Acorn Fund is new; it was raised just through the middle of last year. The genesis of why we created the Acorn Fund is that we looked at the market dynamics as they related to angel investment activity over the past year. In the midst of all the despondency, there were a few things that became clear to us. Number one was that it would be very difficult for us to determine when the IPO market was going to open back up. Number two, in economic downturns there is a tremendous opportunity for companies to be born and be very successful with very little capital actually raised, and, number three, that there were a number of Fortune 500 companies with very healthy balance sheets that were actively seeking to engage and acquire great technology companies as a result of their own limited R&D efforts that were going on at this time.
That became the hypothesis for why we wanted to raise a fund in what would normally be considered a very poor environment. We believe that there is a great opportunity for limited partners and angel investors to make a very healthy return when they focus on finding investments that meet the following three criteria. Number one, very little capital is required to get the company built out. Number two, there is early revenue opportunity for the company, and finally, there are acquirers who are looking to buy these type of deals in the $30 million to $50 million range. And if you look in M&A activity in 2008-2009 and now in 2010, what you can see that over 80% of the acquisitions really do fall into that sweet spot. It’s the ability of large companies to make quick decisions on acquisition opportunities that fall bellow a certain threshold.
Irina: And who are the key people at the Acorn Fund?
Nicola: Several of us from the Band of Angels at large are involved in the Acorn Fund. And Ian Sobieski and I are the two people in charge of the day-to-day operations of the Acorn Fund.
Irina: Do you give any preference to any specific industry when you consider investments for the Acorn Fund?
Nicola: We are actually industry agnostic. I would say that there are possibilities for any industry to fit this model, even when you get into the semiconductor and the life sciences spaces, again because in those industries there may not be actually large requirements that are needed to bring the product to market. There might be early licensing opportunities and basically taking the bigger boys’ with the deeper pockets ability to bring those products to market. So, what we are very good at is being nimble and frugal, which obviously are two critical elements of a successful startup, and helping the company to get to that clear strategy of what the acquisition needs to look like in order to have good opportunities present themselves for some nice ROI for both the founders and the investors.
Irina: And your region is?
Nicola: Silicon Valley, obviously, and then the Pacific Northwest. We are open to doing deals in Washington, Oregon, and all of California.
Irina: What are some of your success stories to date?
Nicola: The very first company we invested in is Practice Fusion. It provides a free, Web-based electronic health record (EHR) application to physicians, and it is doing extremely well. We invested in them prior to Salesforce and prior to Morgenthaler Ventures. When we first met the CEO of Practice Fusion, Ryan Howard, we looked at the space and at what they were trying to accomplish, and we really liked his strategy and his execution thus far. And we think this is bringing a novel idea from a business model perspective to a space that has been prohibitively expensive for doctors to take on, the EHA/electronic health records opportunity. We think this is a great example, by changing the business model, of how you really manage to get ahead of the crowd and stay in front of the competition.