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Seed Capital From Angel Investors: Russ Fradin, The Bay Area (Part 4)

Posted on Monday, Sep 20th 2010

By guest author Irina Patterson

Irina: Have any of the companies that you invested in exited already?

Russ: Yes, first of all I was an investor in Adify, which is nice. I was investor in Playdom, a social gaming company, that Disney just acquired. I am an investor in one more thing that should exit in October. But as I said, I have only been doing it for eighteen months and it tends to take a while.

Irina: What is a single most important thing that angels could do to increase their success?

Russ: I believe you are much more likely to be successful if you are investing in a space where you can actually help. I like to do things where if a company that I invest in hits a potential roadblock, I can be helpful to them. Not that I am in charge, but that I can be a resource and increase the chance that they will succeed. My point is that you should invest only in things you understand, so that you can be helpful.

Every deal I invested, in at some point the CEO called me and tried to get advice on some challenges that they were facing, and I actually was helpful because I dealt with those issues myself.

I am not saying call and bug those folks. There are investments that I’ve done where I wind up talking to the founders of the company every day or two, and then there are some where I talk to them every six months.

I am not saying annoy the entrepreneurs. I am saying if you invest only in things you understand, it is more likely you will be more helpful, and if you are more helpful it is more likely that the company will succeed. But if you make a mistake by investing in something you don’t understand, when they have a problem you will not be able to help.

Irina: What is a single most important thing that angel-backed founders could do to increase their chances of success?

Russ: There is one thing that I tell all angel-backed companies I think they should do. Not all angels agree with me, but I think every angel-backed company should, as soon as it is ready, try and set up an actual board with one to two outside board members who have expertise and can be helpful.

A lot of angel investors tell entrepreneurs not set up a board, that they don’t need a board. My belief is that this is a mistake. I think entrepreneurs should constantly be trying to find as many people as they can to be helpful to them. And I think one way that entrepreneurs can really bring in the expertise into their company. One way is through angel investors, but a lot of times, the angel investors just wind up being rich guys who write a check if they like you but are not really that involved.

The relationships entrepreneurs should be able to have with the outside board members is somebody who is committed to help you to build your company over a number of years and be helpful and supportive, and this is someone you recruit because of his or her expertise.

Entrepreneurs tend to think of the board as someone that they have to fight with and hide from. I think that is a terrible attitude. My perspective is that it is very rare that entrepreneur is going to come up with an idea, hire a couple of people, build totally on their own without any advice or input or assistance from anyone else and turn it into a giant company.

So, in the same way you are trying to hire the best possible employees and raise money from the best possible investors, I think the third leg in that stool in the early days is getting one or two, not a hundred, not two hundred, but one or two of the best people in the space. I think companies wind up being much more successful when they have that active group of people around them helping them out.

Irina: Thank, Russ. Great insights. I hope a number of entrepreneurs follow your suggestions.

This segment is part 4 in the series : Seed Capital From Angel Investors: Russ Fradin, The Bay Area
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curious how angel investors work with the mom and pop small business that just need a small loan to carry them thru the rest of the resession as they have no credit avalible.

kurt Thursday, January 13, 2011 at 3:34 PM PT

they typically don’t.

Sramana Mitra Thursday, January 13, 2011 at 4:12 PM PT

i gave the wrong email address with my comment

kurt Thursday, January 13, 2011 at 3:38 PM PT