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Seed Capital From Angel Investors: Geoff Ralston, Silicon Valley (Part 3)

Posted on Wednesday, Sep 15th 2010

By guest authors Irina Patterson and Candice Arnold

Irina: What is your criterion for market size?

Geoff: There are exceptions to this, but I tend to only want to invest in startups that have significant or large upsides. I try to avoid putting fixed numbers on that other than I have it in my mind. If I can’t see a path to a $100 million in revenue, it doesn’t seem so interesting.

It’s very hard to predict, most of the times what the size of a market is for some of these ideas. Their sense of what exactly their market is can be pretty vague. Sometimes they have it and they can make a good case for it, but I still turn around and think, How big of a company can this become?

So, let’s relate it. If it’s $500 million market, can they really get 20% of it? I tend to prefer to total available opportunities in the billions and if they get a percentage of it . . .  I want to believe that each company can become a $100 million company. To believe that, you have to believe it’s a pretty big marketplace to begin with.

Irina: Do you require the team to have experience?

Geoff: The criteria for the entrepreneur is richer than that and more complex. Experience is a plus. There’s a lot written on what it is about entrepreneurs that makes you believe in them.

My belief in them has to span a variety of different belief systems. I have to believe they’re smart enough to be able to take this idea and modify it and do what’s necessary to make into a successful business. I have to believe that they can execute, that they can build a team, that they’re charismatic enough to attract really smart people, so that when they run into the inevitable barrier, they won’t back down and crawl into a fetal ball and cry. Rather, they will find some way to surmount the barrier, to go around it, to do whatever they need to do to make the business successful. This is a kind of person who doesn’t take no for an answer but will always search for that yes.

There’s an entire set of belief systems around that. They understand the technology because it’s usually tech companies. They understand the customer to whom they believe they’re going to be selling or delivering their services. [I have to] believe that these are folks who can build a great product because I love companies that can build great products that’ll change the lives of people in some minor or more significant way.

It’s a very romantic notion, entrepreneurship. One of the things I compare it to is a lot of people think they’re general managers, all the way up to CEOs, but very few people are good at those jobs. A lot of people think they’re entrepreneurs, but very few people are good at being entrepreneurs.

Irina: Do you do anything with the businesses you decide not to invest in? Do you refer them to someone?

Geoff: It depends. One of the reasons for not investing is that I don’t believe in the entrepreneur. I generally won’t refer those to anyone. If I kind of believe in the entrepreneur, but I’m not so sure about other things or I don’t think it’s right for me, I might pass them on to someone else. I try to be as frank as possible with those folks.

Irina: Do you give them any advice?

Geoff: I always give to people who meet with me an advice. As much as I can. The main reason I do this is for personal satisfaction and part of that personal satisfaction is that I love helping people. I love it when an entrepreneur, whether I invest or not, walks away thinking, I got something out of that meeting. This was the furthest thing from a waste of time that I could’ve done even though I didn’t get money. I made my product better.

When I hear that kind of thing, that’s the kind of pat on the back that will make me happy for days on end. When people tell me, “This was the best product feedback we’ve had in months. This is fantastic.” That’s what it’s all about.

This segment is part 3 in the series : Seed Capital From Angel Investors: Geoff Ralston, Silicon Valley
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