By guest authors Irina Patterson and Candice Arnold
Irina: Is there anything your group does differently from others in valuing a company?
Paul: As we’re all successful entrepreneurs ourselves, we’ve been on that side of the table. We understand motivation and what a poor capitalization structure can do to motivation. For example, just because an entrepreneur wants to get a deal done and is offering a majority share to do so, that may not be the best course of action and may create flight risks and other issues once future rounds and dilution are taken into account. That said, we’re no pushovers, but it’s a balance between motivation on the strategic investor side and that of the management team itself. Both have ownership hurdles that need to be protected.
Irina: What is the typical valuation of a company you invest in?
Paul: From $1 million to $7 million but, again, we sometimes get involved at slightly later stages, in conjunction with a VC, and then it’s different.
Irina: How do you usually conduct due diligence?
Paul: As we get involved at such an early stage, there isn’t much historical data to analyze – hence our due diligence normally focuses on tech, people, market, and value proposition. Given our extensive reach into companies in portfolio and through members’ activities, we can request specialist advice and critique from a huge toolbox of expertise.
Irina: How long does it usually take for a company to get funding from you?
Paul: Eight to ten weeks.
Irina: In percentage terms, how much of a company’s equity do you usually seek?
Paul: Twenty-five percent for $1 million, but it’s variable.
Irina: What is the typical return you seek and over what period of time?
Paul: At least ten times, but we have no minimum. If it’s the right deal for the company, then an exit [is] always given respect.
Irina: In what stage of development do you usually invest?
Paul: From two people and a deal all the way to a couple if quarters from profitability.
Irina: What should be the total available market for the company’s product or service?
Paul: We invest in smart ideas and are not necessarily restricted to ones that need to be “big.” Of course, smart ideas tend to be big ones.