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Seed Capital From Angel Investors: Raymond Chan, Tech Coast Angels (Part 3)

Posted on Friday, Oct 1st 2010

By guest author Irina Patterson

Irina: Let me ask you, are there any charges to entrepreneurs at any stage as they are going through the process of presenting to TCA?

Ray: No, we don’t believe in charging because we see them as our customers; they are our partners. I don’t think its right to charge our customers a fee to work with us.

Irina: How many applications do you think you receive a month, approximately, from all sources?

Ray: We have on average of 80 applications a month.

Irina: And how many of those do you see in person?

Ray: Around 20 of them we invite to our screening. And then they will have to present to us on the screening, and then they will have to present to two or three networks. That’s because we have members everywhere; they might have to go to LA or San Diego just to do the presentation.

So, they will come and present to us, and after the presentation will make a determination as to the right the way to tell them, well, this is something that we don’t want to see, that we’re not interested in, or we tell them that we’re interested in their deal.

And then we select one or two members to be the deal lead. Being the deal lead means that this person or couple will be the focal point for the entrepreneurs, so they don’t have to talk to all of the angels. They won’t be bombarded with all angels’ questions. The deal lead will be the focal point for the liaison for the entrepreneur. And then we’ll do due diligence. We’ll ask questions, we’ll help the entrepreneurs — then we put together the term sheet together. So the deal lead will handle most of the operations and executions and the due diligence.

Irina: And what is the most important factor when you’re debating whether to fund a venture?

Ray: I would say — since we have so many different members — I can just tell you what is the most commons factor that most members look at. It’s the team and the people.

I talk to many members about this, and I think for all of us, including me, the people and the team come first. So we look at the CEO as well as the team that he or she brings to the table. That would be the biggest factor. The second factor is the idea and the market size.

Irina: What is the market size that is acceptable for you?

Ray: Well, it depends on the product. For example, if this is just a service, say a subscription, then we look what is the growth rate, what is the user growth. So, a several hundred million dollar market size is good. It all depends on the industry, but I would say we’re looking for the return. We’re looking for the deal, looking for the size of our investment, and then we say, well, if we can get a 30 x in five to seven years, we’ll be happy.

The market has to be in the neighborhood of a couple hundred million and up. We’re looking for a potential that eventually the exit will yield 30x return. You know, you have to be acquired by a company. And to be acquired by a company, you need to have a sizable market size.

Irina: How many investments have you made in the past 12 months?

Ray: I can tell you the numbers for the past six months. We have made 14 investments. In the past 12 months — I don’t have the exact numbers — I would say more than double that, but I just don’t have the exact numbers. Last year we were quite active.

Irina: What was the dollar amount, approximately, for each investment?

Ray: All together on the 14 deals, we totaled over $19 million in investments; this is including the TCA and our partners.

Irina: What is your typical investment per a deal?

Ray: Our typical investment is around $200,000 to a million dollars.

Irina: How long does it take for a company to receive funding from your group?

Ray: I would say the shortest is time is one month, and [it could be] as long as three months. I’d say as a rule of thumb, two months at least. But we have had deals closed in less than 30 days.

This segment is part 3 in the series : Seed Capital From Angel Investors: Raymond Chan, Tech Coast Angels
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