By guest authors Irina Patterson and Candice Arnold
Irina: What do you do for companies that you decide not to invest in?
Dick: We make contacts for them. That’s probably the biggest thing we can do for them – help them understand what they need to do to make them more eligible [for funding] or can help them understand that they’re trying to do something that they ought not to do. I think when you help someone make a good decision about where to go from here, you’ve helped him along the way and done him a favor.
Irina: Whom or where do you usually refer them to?
Dick: All sorts of different places. We have various business development organizations here in town: Small Business Development Center, Women’s Business Center, the incubator, the Chamber of Commerce.
We sometimes make connections with them and other companies that we’re aware of that might have an interest in their technology. You know, if the technology is not something that could be stand alone, it might be advantageous to an existing company.
Irina: So, maybe a partnership or a vendor relationship could be formed?
Irina: Do you have any sector preference?
Dick: Yes, information technology, bio-technology, the Web, energy – we’ve done a little work in energy. We look for people using technology to generate economic leverage. That can fall in a lot of places.
We have generally a practice that says, “We will not attempt to do anything in a space where we don’t have any domain experience in our membership.” So, we’re always looking for one or two of our members who’ve got some domain expertise that we can use with a prospect.
Irina: Do you invest in any non-technology companies?
Dick: We don’t do conventional retail, we don’t do real estate, we don’t do restaurants, we don’t do service businesses.
Irina: But you do e-commerce, online retail?
Irina: Do you invest in cloud computing?
Dick: Not so far.
Irina: What is your preferred investment type?
Dick: We generally do preferred shares. Some companies come to us with a deal already in place with someone else as the lead and if we’re a follower, sometimes we’ll do common shares. But generally, we like preferred stock.
Irina: You syndicate with other angel groups?
Dick: We have, yes. We have an organized angel group 75 miles to our west and we have begun to syndicate with them. We also have syndicated with venture firms out of Birmingham.
Irina: Do you have any companies that exited already?
Dick: Yes, two. I should say that we have four that have exited. Two of them were unsuccessful and they exited by losing all our money.
Irina: Was it a substantial amount of money?
Dick: Yes, a total of $1 million for both of them.
Irina: Did the two successful ones cover the losses?
Dick: Actually, it has. The successes have covered the losses. So far, we’re at about a break even point right now. One of them was an e-commerce company and we were in it for 17 months and it returned a 230% gain. So, we were extremely pleased with that.
Irina: How did you exit it?
Dick: They were acquired by a public company. That was an all cash deal; it was a great deal. The other exit was another acquisition by a public company by the name of Clarient [diagnostic technologies for cancer]. They bought a bio-technology company we invested in and we got their stock and their stock has continued appreciate since they purchased. It looks like we’ll end up with a good gain in that as well.
Irina: Why do you think the failed companies didn’t succeed?
Dick: In one case it was an energy company trying to do a bio-diesel conversion business model. They were going to take used restaurant vegetable oil and convert it to bio-diesel.
In May 2008, they were ready to go. They had converted their first tanker truck load of oil, and in May the price of oil was $140 a barrel. In September, the price of oil was $60 a barrel. And the banks were withdrawing credit from everywhere in the fall of 2008, so their business model was underwater and they could not survive.