Irina: Do you have any sector preference?
Alan: No, but I’ll hit on a couple. First off, one of our criteria – and I call it a soft criterion, but it’s a general guideline that we adhere to – is that within Springboard’s membership, it’s 53 partners, if we don’t have anybody who has expertise in that industry, we generally will not invest in it. I can’t exactly tell you what sectors we invest in but if you tell me a sector, I’ll tell you whether we invest in it.
Irina: E-commerce? Web?
Alan: Some of the standard things we are that we don’t invest offshore and we don’t invest in oil and gas. We also do not invest in biotech, therapeutics, or drug discovery.
We do invest and have invested significantly in the medical device sector, but not in drugs. There are also some very fast-moving industries to that we tend to not invest in. I’m talking about areas like social networking and Web search. We don’t invest in those and quite candidly it’s because we don’t think we’re smart enough.
A lot of people smarter than us are out in California and so would be right on top of those industries. We don’t think we understand them well enough to do that. So, maybe we’re a little more traditional, I guess.
Irina: Do you have a preferred investment type? Is it preferred shares?
Alan: Always. Our term sheet is virtually identical to a standard venture term sheet. We’ve looked at some other things. Of course, we will not consider an investment in common. We’ve looked at some companies with debt, convertible debt, but we’ve never done a deal along those lines. We prefer not to. We prefer a preferred investment.
Irina: Do you think about how long you want to stay invested in a particular business?
Alan: Sure. Preferred, three to five, realistic, probably four to seven. Normally, when we’re working comps to try and get an idea where an exit might be, we’re almost always using M&A comps.
There might be an IPO company some day, but I don’t think so. When you’re looking at M&A, it also means that in most cases you’re looking for a strategic acquisition rather than a financial acquisition. And that again looks back to the point that I made about competitive advantage. Why would a company come out and consider acquiring your company? That’s a real critical question at the beginning. It also begs the question, how big do you need to get in order to attract their interest?
Irina: Could you share any interesting experience with one of your investments, either good or bad?
Alan: There are always plenty of bad ones because there is a lot of stuff that goes on in companies. I think on the plus side, the companies that we have been most pleased with our investments have been not particularly sexy companies in sexy industries but good, solid businesses that drive good margins. Those by far have been the most pleasing ones for us.
When we’ve gotten into the area of things that are going to revolutionize the world or revolutionize an industry, we almost always miss on those. So, we tend to be fairly mundane.
Alan: One of the great companies that we’ve been involved in – we’re still in it, we’ve not yet exited – but a company that we invested in, where we teamed with three very large venture firms and that’s not usual. I mean, we’re talking about big, big venture firms and the relationship we’ve had, even though we’re a little teeny, tiny angel fund in Jacksonville, has been marvelous across the years.
The company, like most companies, turned out to need more money than we thought at the beginning. We played our piece, the VCs played their piece. We actually sit on the board of that company and represent some of the investors, and it’s just been a marvelous relationship.
That’s been a little bit eye opening because a lot of the side conversation within the angel community is that the venture firms are a bunch of scoundrels. That’s just simply not been our experience. We found them to be very highly professional and we hope they consider us the same. That company is just doing extremely well.