By guest author Irina Patterson
Irina: What is a typical valuation of a company when you are investing?
Ray: We don’t touch anything more than $4 million.
Irina: Do you think in terms of equity, and how much equity do you usually seek?
Ray: In terms of equity, it depends. We don’t have the percentage that VCs typically have. We are more entrepreneur friendly than most. It all depends on the negotiation and on how much we like the company, so we don’t have a hot number that we use.
Irina: What are your typical equity ranges?
Ray: I would say 10 to 25 percent.
Irina: And you already said what the typical return is that you seek. You said 30x?
Ray: Yes, 30x would be our goal. But I can tell you that, for example, in the past two months we had five exits.
Irina: Excellent. How long were those companies with you before they exited?
Ray: The biggest one is a company that had an IPO. It is listed (NYSE:GDOT); the company’s called Green Dot. It went public and we had over a 110x return. They do prepaid credit cards. It was a good deal. But then we had a deal that yielded 1.2x. So it depends on what we have. In fact, we have one more [exit] coming up this month. I haven’t announced it so I can’t tell you, but this one has several tens percent IRR [internal return on investment]. But the goal is to get a 30x over, we hope, five to six years. This is our goal.
Irina: Do you track your internal IRR for the whole group?
Ray: We are starting to do this — we don’t have the exact number on average, but we have it deal by deal. We have don’t have overall, because it’s difficult for us for a couple of reasons. One is we have different members — they come at different times into the deal, and sometimes it’s hard for us to gain information from individuals versus, for example, for a VC fund or a fund.
If you have 30 angels and they put their money in at different times, it’s hard to get information from all 30 angels. It’s hard for us to track, but we can track, for example, the exit. We can kind of estimate, at this stage — this is the money that come in at this stage, for Green Dot, for example, for people who come in at this stage. The first stage, they’ll get this return, and the second stage will get this return. We don’t have overall average IRR.
Irina: In what stage of business development do you usually invest?
Ray: It can be as early as a prototype, and we have several very beginning seed deals that come from ideas. But that’s rare. We are seldom invest at the idea stage. Usually we look for at least some proof of concept with a prototype or alpha.
Irina: Do you require a business to have customers?
Ray: It’s not a requirement, but it would much easier for us to fund if there is a good track of record of customers.
Irina: Right. What about people? You said people are very important. What about their experience? Do they have to have previous experience?
Ray: That is the part of the mix, part of the factors. Previous experience and what they know are crucial.
Irina: How about their business experience? Can they be out of school or are they required to have some working experience in the field?
Ray: Working experience is not a requirement. And we always invest into new entrepreneurs who have never done it before, so in those cases we will go in and help them. So, in many cases we will invest our time and money into nurturing the business, together in partnering with the entrepreneurs. So, it’s not a requirement.
Irina: But probably the passion for the subject is a requirement, right?
Ray: Oh yes, that’s for sure. We want the passion, as well as the drive and the eagerness. We want them to be hungry for success.