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Seed Capital From Angel Investors: Peter Birkeland, RAIN Fund Program Manager, RAIN Source Capital (Part 7)

Posted on Sunday, Jul 4th 2010

By guest authors Irina Patterson and Candice Arnold

Irina: You get about 150 deals a month and out of those 150, you invest in one deal a month, so what do you do with the other 149?

Pete: Some of them stay in the process and we keep in touch with them, or they make progress and they come back. Some we try to refer to other sources, other places that maybe look at deals. There are some Web-based sites out there – one of them is Funding Universe – that we have relationships with. Some of them we’ll just write to and say, I’m sorry, this just isn’t a good fit for our network. Best of luck.

Irina: You say you invest in deals from a lot of different sectors?

Pete: Yes, pretty much everything, except gambling and mining. We do some clean energy stuff and do some green stuff, but it’s got to be fairly targeted. We don’t get into big, physical installations because we just can’t play in that space. But we’ve invested across all entities.

Irina: What is your preferred type of investment?

Pete: Preferred stock. We’d like to do preferred stock. It just works out well. We’ve done investments with common, we’ve done bridge loans, and we’ve done subordinated debt. But we’d like to do preferred.

Irina: Have you ever invested in deals that would generate dividends?

Pete: Not at this stage. We’re so early. These companies are at the stage where they don’t have the cash flow to pay. Also, we are precluded from investing in publicly traded entities, so none of our funds can buy publicly traded shares. So, in a roundabout way, I guess we probably wouldn’t take a dividend-paying entity.

Irina: What is your preferred exit strategy?

Pete: Our exit strategy really is growing these businesses, to get to a point where, first they can be sustainable for cash flow purposes. And then working as investors with the board and with management to then grow the company and finally examine what are the exit possibilities.

The most likely scenario is going to be acquisition. So, we’ve got to be able to do that. That’s really what we try to do. At this stage, we’re just trying to get companies to cash flow positive. Once we get to that point, then, hopefully, they’ll be able to create more opportunities and the exits will come.

Irina: Do you have any successful exits to date?

Pete: Not yet. We started the RAIN program in 2003, so we’re just starting to get to the point now where our companies are going into years five and six, so we’re getting close. We’re getting close to seeing some companies exit. We’re happy with the progress in our portfolio.

I think, in this environment, if you look at our portfolio, we have a good number of companies that have made progress and are growing. Some are treading water. We have very few that are in deep trouble. But we haven’t had a lot them close down, yet, either.

Irina: What exactly do you mean when you say trouble?

Pete: They’re companies that are running out of cash, and we’re having issues with figuring out how we’re going to get that next round in. Is this company going to be able to raise enough money to keep operations going?

This segment is part 7 in the series : Seed Capital From Angel Investors: Peter Birkeland, RAIN Fund Program Manager, RAIN Source Capital
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