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Seed Capital From Angel Investors: Alan Rossiter, Vice Chairman, Springboard Capital (Part 11)

Posted on Friday, Jul 30th 2010

Alan: Another one is in the financial services arena, and it has been cash flowing now for over twenty-four months, and it doesn’t get any better than that. When a company is just internally building cash, it’s a wonderful thing to see and we’ll probably look at exit on that company possibly even this year because there’s a lot of interest in it. But getting the company to cash flow is everything.

On the down side, particularly in Springboard One, a number of mistakes that we made that, in retrospect, were just dumb, we never should have made an investment. We were looking at information that should have dissuaded us from investment but we didn’t do that. At the beginning, we thought we were all fire smart. We found out this is a very, very difficult business.

When we start getting warning flags and warning signals and things like that, we pay attention now. At the beginning, we tended to talk ourselves out of it. We made some big mistakes, too.

Irina: What industry sector?

Alan: I’m thinking about a couple of them. One was in the medical devices, I think, and a very nice medical device. This goes back to why we don’t invest in sectors that we don’t have expertise in. At that time, we didn’t have expertise in the medical device sector.

We did not understand reimbursement codes and how easily they could be changed. So we bet on a company that was based on reimbursement, and the code was changed. We just didn’t even know that that risk existed. That’s just naïve on our part.

One of them turned out to be a very unethical CEO and founder. He had a prior company, had prior investors, and had left that company after some years and was forming his next company. We invested in the second company. We never spent the time to go back and talk to the prior investors. We would have found out an awful lot of had we done that. And that’s just pure laziness on our part.

Irina: What do you do with businesses you don’t invest in? Do you refer them to anybody?

Alan: Almost always, if we can. You get a lot of geographic mismatch in this business. Understand that our website tries to be fairly clear that we invest in this area, in northeast Florida and the southeast. We’ll still get inquiries from all over the place. When we can, and in most cases we will, we’ll refer them somebody we know or have some association with who’s closer to them. We’ll even do that in Florida.

If it’s coming in from Miami or Boca Raton or Ft. Lauderdale, I’m going to flip to New World Angels real quick because if they look at it and they’re interested, they’ll bring us in on the deal anyway.

In Florida, there are so few organizations like us that it’s hard to do that. We will also try and give companies feedback concerning their businesses instead of just referrals. We’ll provide them with referrals when it’s appropriate. But we will not offer feedback. If it’s requested, we will do that. The reason we don’t offer that is because too often that leads to an argument.

You’re talking to somebody who has great pride of ownership of his or her business venture and you call up and say, “We don’t think this is going to work,” you’re probably picking a fight. So, we’re not trying to argue with anybody. If we just don’t think it will work, we don’t think it’ll work. If they’re honestly looking for constructive advice or something, sure, we’ll provide it.

This segment is part 11 in the series : Seed Capital From Angel Investors: Alan Rossiter, Vice Chairman, Springboard Capital
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