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Seed Capital From Angel Investors: Nova Spivak, West Coast (Part 2)

Posted on Wednesday, Sep 22nd 2010

By guest author Irina Patterson

Irina: From all the sources, do you have an idea how many pitches you get a month?

Nova: I would say it’s probably about five to ten a month.

Irina: Out of those five to ten, how many deserve a closer look?

Nova: Usually one or maybe two.

Irina: And when you see a good one, what is your next step of engagement with them?

Nova: I usually write back, and we talk, and then we usually do some kind of phone call where they show me what they’re working on, maybe a screencast so that I can see it. Sometimes they let me log in to take a look, if that’s possible. And we talk about it. And if it gets me to start thinking of how this can be better or where I can add value, then I get interested.

Irina: How do you usually conduct your diligence?

Nova: Usually, I test the product up and down and really look at that—number one. Number two, I look at the backgrounds of the founders and the team. And then, if they have other investors sometimes I’ll talk to them, the other angels involved. But generally these are such early-stage companies, it’s very easy for me of evaluate them.

Irina: In the past twelve months, how many investments have you made?

Nova: In the past twelve months, four.

Irina: What is your average dollar amount?

Nova: It could be $25,000 to $50,000, in that range, usually, per deal. And maybe I put more in later. Then I usually do a lot of work for these ventures as well.

Irina: How long does it take to receive the funding from you?

Nova: Once I decided to do it, it’s very fast, like a week, or maybe two weeks.

Irina: Do you think in terms of valuation?

Nova: That’s one of the most important things, actually. I look only at companies where I’m either the first investor or one of the first investors. So, they are usually at a very early stage.

They usually have a team of one to maybe three people at that point, and valuation at that stage is also very low. It’s very high risk, and they usually haven’t even built their product yet or just starting to build it.

Valuations are usually low. I don’t have a number; it’s flexible, but it’s low. I usually look at projects where I can threw a combination of both investing as well as advising and I can get anywhere from, six to ten percent of a company.

Irina: Do you think in terms of returns?

Nova: I do. I usually look for – in this economy – anywhere from five times to ten times is fine. Ten times is great, five time is OK. It can even be three times if it’s over in a year or two. My horizon is in about three years.

Irina: What stage of the business development do you usually prefer to invest in?

Nova: It can be as early as an idea. Usually it’s further along than that. It’s usually an idea, plus a technical lead, and maybe a business lead. But usually a technical lead, a product leads and maybe some kind of prototype at least.

Irina: You don’t necessarily require them to have revenues?

Nova: No, definitely not. If they have revenues, it’s already too late. I only invest in pre-revenue companies.

Irina: Do you think in terms of TAM (total available market) for the company’s product or service?

Nova: I don’t do niche things. I work only on companies that could be businesses of a hundred million or more annually within a couple of years. I’m very picky; I’m looking for really big opportunities that are high risk, early stage, really new, ambitious ideas.

Irina: Do you invest in teams straight out of school, or do you require previous business experience?

Nova: They have to have professional experiences; they don’t have to have been entrepreneurs before. But, yes, I look for people who have done fair amount of works in the field. I’m not looking for people who are fresh out of college, but I’ll consider it if they’re really geniuses.

This segment is part 2 in the series : Seed Capital From Angel Investors: Nova Spivak, West Coast
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