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Seed Capital From Angel Investors: Peter Birkeland, RAIN Fund Program Manager, RAIN Source Capital (Part 4)

Posted on Friday, Jul 2nd 2010

By guest authors Irina Patterson and Candice Arnold

Irina: Do you hold regular meetings?

Pete: Yes, most of our funds meet every other month. And then they usually have screening committees. Some screening committees are monthly; some are a little bit ahead of the member meetings.

Irina: When you’re debating whether to fund a company, which factors carry the most weight?

Pete: The general two, obviously, are management and market.

We understand that at this stage of business there are going to be holes, but what does this management team look like? Do you believe that they can execute and get to the next level of milestones?

Then on the market, you want to find a market that can support sufficient growth and opportunity for what the management team proposes.

With funding environments as they are today, the ability for a company to generate cash flow quickly is one of the factors that we consider when we invest. We have to see is this round we’re participating in going to be enough or do we have to get a larger round of follow-on financing, so that winds up being another consideration right now.

Irina: In the past 12 months, on average, how many investments did you make?

Pete: On average, we probably do 15. Well, remember we’re doing 150 deals a month, to that’s 1,700 deals a year.

Irina: What is the average dollar amount per deal?

Pete: I’d say about $200,000 to $250,000.

Irina: Do you ever go below $200,000?

Pete: Yes. We’ve had some funds go in as small as $15, 000 to $20,000, but that’s just been a one-off deal. The funds can decide what they want to do. I would say most of the funds invest $50,000 in a company at any one time, and then we’ll see side-by-sides. Out of that $250,000, that includes our RAIN Fund and then individual side-by-side investments. But that’s about where I think that number is right now.

Irina: So, it can be as low as $50,000 and, on average, $200,000?

Pete: On average, and then, obviously, there’s a higher end, and we have had some funds that have raised over $1 million from our network.

Irina: Do you syndicate with other networks?

Pete: We do. There’s an angel group here in the Twin Cities that we’ve syndicated with. Our funds out in Idaho and Montana have formed alliances and relationships with angel groups out in the Pacific Northwest. We actually did an investment in North Dakota with a group of angels from Utah. So, we’re very comfortable syndicating with other angel groups.

Irina: How does it usually happen?

Pete: Usually there’s a relationship that develops, where there’s been a relationship or some type of getting to know someone either through an alliance or through some type of business relationship.

Irina: How long does it take for a company to receive funding from your group?

Pete: Probably 90 to 120 days.

Irina: What’s the typical valuation of a company when you invest?

Pete: We’re looking at companies that have pre-money valuations for first-round angel deals that are between $1 million and $2.5 million, pre-money, depending on stage.

We’re not going to do much more than that just because of the investing path that it looks like these companies are on right now. We have done some later stage deals with companies that have revenue. Those valuations typically are running around $5 million pre-money. Somewhere around there.

This segment is part 4 in the series : Seed Capital From Angel Investors: Peter Birkeland, RAIN Fund Program Manager, RAIN Source Capital
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