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Seed Capital From Angel Investors: Peter Birkeland, RAIN Fund Program Manager, RAIN Source Capital (Part 8)

Posted on Sunday, Jul 4th 2010

By guest authors Irina Patterson and Candice Arnold

Irina: What advice would you give to angel-backed companies to increase their chances of success?

Pete: I think the ability to manage cash efficiently while still hitting milestones. We want to know how you are going to use our money to get to your next milestones efficiently.

Investors have many options to make investments right now. Valuations are continuing down. Companies are going to be staying private longer; they’ve got to raise more capital.

So, those entrepreneurs have to be able to figure out a way to manage that cash efficiently to get to the next levels. I think the other thing, too, is for entrepreneurs to figure out is, when do you want to take investment?

It might make sense to try to bootstrap longer before you take investment, or it may not make sense for your business to take investment at all. That’s the advice that I’d give and that I think is relevant right now.

There are some entrepreneurs who aren’t going to listen. That’s true with anything. There are angel investors who don’t listen. But I think the more feedback we can give to entrepreneurs, the better they’ll be.

And maybe it’s not this business, maybe it’s their second or their third where they’ll find success. At the end of the day, as long as we’re ethical, we treat people fairly, maybe give honest feedback, we should have a good interaction and we hope, over time, they’ll want to come back and come back with us.

Irina: What can angels do to increase their chances of success?

Pete: What I think angels have to do is be realistic on valuation, make sure they’re not overpaying for companies. They’ve got to manage their portfolios in such a way that they can figure out when their exits are going to happen so they can redeploy their capital.

Right now, everyone’s in a period of saying, We’re really excited about what’s happening in angel investing in the United States; how do we just make sure that we keep our companies going, keep the capital going, and at some point in the future be able to realize some exits?

The other thing, too, for angels, when we survey our members, financial return is at number three or four. They’ve got to enjoy what they’re doing. They’ve got to enjoy working with the entrepreneurs, finding investments, spending time with them, and giving back. If they can do that, the returns, hopefully, will take care of themselves.

I should also tell you that every year we do a conference for angels. Ours is going to be September 23–24 in the Twin Cities, in Minneapolis [and St. Paul]. We’re going to focus on three investing areas: software, healthcare, and green.

Those are fairly broad, but we’re going to define those topics more narrowly. And for angels, we are doing some talking about where to look for investments in the coming few years. That’s open for anyone to attend, and we have more on our website about it.

Irina: Thank you, Pete. Great insights.

This segment is part 8 in the series : Seed Capital From Angel Investors: Peter Birkeland, RAIN Fund Program Manager, RAIN Source Capital
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As the manager of the Boise Angel Fund, the Idaho-based Rain Fund, I think what Pete says is right on. I might add research shows that angels need to have a diversified portfolio of investments in order to produce returns based upon more than luck. For many, perhaps most angels, it's really hard to invest intelligently in a number of deals. A fund, such as those developed by Rain Source, is one option for achieving diversification.

Kevin Learned Monday, July 5, 2010 at 10:31 AM PT