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Seed Capital From Angel Investors: Elizabeth Marchi, Frontier Angel Fund (Part 3)

Posted on Thursday, Oct 7th 2010

By guest author Irina Patterson

Irina: On average, from all the sources, how many pitches do you receive a month?

Liz: I’ve been keeping a running tab this year just out of my own interest, and I’m talking to about 20 entrepreneurs a month.

But when our fund meets, we usually have wind it down to two or three. That’s to get to common pitch to the fund.

So, if you do 40 entrepreneurs in two months, two are going to come and present. But then you have to remember, of those 40 that I talk to, maybe one will come present two months later because they’ve gone back and refined the plan, done more work, found a partner . . . you know, that kind of thing.

Because that’s the thing about this business, I’m amazed at how many startups you see that really have a pretty nifty idea, but when they actually get to the business part, they now have a completely different customer and their value is coming from something entirely different. It’s amazing. That’s why it’s so important we don’t invest in anybody who doesn’t have customers.

Irina: When you see a promising deal, what is your next step of engagement?

Liz: We have a real process for a fund meeting. I send notes in advance which tell them how many slides we want, what we want on the slides, and so on. They present, they go out of the room, we discuss it, and then we take a vote on whether to perform due diligence, and sometimes, even though we like an idea, if nobody wants to step forward to do the due diligence, then we don’t like it that much.

So that’s the next step — we either say, “Yes, we’re going to do the due diligence . . . ” or “No, we’re not.” And if we say no, we go out to tell them why, and have a little counseling session. And if we say we say, yes, we name the team and we try very hard to always get our due diligence done in three months if we can. Two to three months; we don’t like to drag it out.

Irina: Do you have any other meetings for entrepreneurs?

Liz: My fund itself doesn’t, but I do. One of the things – that’s part of what the Montana Angel Network does and one of the reasons I was in Helena yesterday — is, because we would like to have better deal flow, I’m getting ready to do a pilot project with our Department of Labor, and I’m working with a very well- known angel, Bill Payne.

We’re going to build a curricula to do a half-day seminar on building high-impact businesses, that’s going to be aimed at adults, not students.

We have business schools here that do business plans, but we think we can do a better job of informing people who want to set up entrepreneurial enterprises about what are the sort of acid test things they need to do. So, we’re going to try to do that.

It is an 18-month project, and at the end there’ll be a pitch clinic with a prize. So, we’re going to see how that goes, and part of that will be delivering this [idea] in seminars, so that it will be a place to gather entrepreneurs from across the state. It’s a huge state – it’s the size of Germany, and there are fewer than a million people.

Irina: What will be the prize?

Liz: It’ll be some amount of cash. I’m really involved in the business plan competitions at the universities, and all of those are great. But they’re focused on students, and one of the things we all know is that entrepreneurs — successful entrepreneurs – have usually tried and failed at it three or four times. It’s not an academic exercise. It’s a “I got out there and did it” exercise.

Irina: Right. How do you usually conduct your due diligence?

Liz: We generally do a background check, we call customers, we do on-site visits if there’s an operation, and the team writes it up. They come back usually to our next meeting two months later. And say this is looking really good. If so, well, we have learned the hard way that if you’re going to go to the trouble of doing due diligence, at the same time you to be working on a term sheet because there’s no need to do that kind of due diligence and not be able to come to terms. So we start discussing valuations and all that sort of thing from the very beginning.

This segment is part 3 in the series : Seed Capital From Angel Investors: Elizabeth Marchi, Frontier Angel Fund
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