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Seed Capital From Angel Investors: Elizabeth Marchi, Frontier Angel Fund (Part 6)

Posted on Sunday, Oct 10th 2010

By guest author Irina Patterson

Irina: How many investments do you have in your portfolio right now?

Liz: We have nine.

Irina: What stage of business development you usually invest in?

Liz: Early. But they have to have a customer and the product. We do not do R&D. And frankly, the customer doesn’t necessarily have to be a paying customer. It can be a beta customer, but there has to be a product that’s out there. We don’t fund development.

Irina: Do you have a number in mind for what total available market for the product should be?

Liz: No, we don’t. We like big markets and we look at that, it’s really important to us, but we found most entrepreneurs are not very good, nor are we sometimes about it.

You can say it’s a big market is oppose to a small market. But is it a $1 billion, is it $1.3 billion? That’s hard to know. And are you going to capture 1 percent? Every entrepreneur is going to think it’s 80 percent, but we know it’s probably going to be 5 percent. You know, it does need to be specific, but we have to have a number.

Irina: How about niche ideas — niche markets, like a $20 million dollar market?

Liz: We love niche if it is unique, and if in a go-to-market strategy it’s such that you can get into that space pretty efficiently. We’ve just looked at a company that had a pretty interesting niche market. And the downside of it was that we love the product; we think it’s incredibly clever and proprietary. But it’s going to cost a lot to get there. And if you don’t get a budge at the market, then you don’t realize your returns.

Irina: What was the product?

Liz: It was an after-market product for Gulfstream aircraft, private jets. It was a niche market and a very expensive product. But very cool and compelling. How much are people who are on Gulfstreams spending for after-market products? For me, I don’t know.

Irina: What about the people, the entrepreneurs? Do you require the entrepreneurs to have previous business experience?

Liz: No, we don’t. But it’s really tough if you don’t. We certainly look at the track record and the team. I’ve got, in the backwoods of Montana, a pretty sophisticated group of them, they all ran businesses and have been in M&As. And you know, business is always about the people, more than anything.

Irina: Did you invest in anybody who’s just out of school with no previous business or senior executive experience?

Liz: We haven’t invested in anybody like that, but frankly we also haven’t had anybody come to us like that. They were out working, yes. But — I mean there are a lot of them haven’t been running a business. They’ve been working or come together as a team. We like teams. It’s really hard to scale when you’re just you.

Irina: What if they have an incomplete business team? What do you tell them?

Liz: We tell them that they need to go find a CFO or CEO. And then on occasion, one of our members will volunteer to do six weeks as their CFO or COO, and do some mentoring. We have some members who spend a lot of time on those companies. Or we will try and help them find somebody, and we always take a board seat or observer rights. Always, if we are the lead investor.

Irina: Is there a character trait of a founder that could really clinch a deal for you?

Liz: Never give up. The other one is honesty. The minute anything that is not disclosed in a forward way, that’s automatic – we’re done.

Irina: What do you do with the companies that you don’t invest in?

Liz: What we do is go out and tell them why. We’ve actually had people come back after they reworked the plan. Bu we’re very open, and even if our fund doesn’t  invest, one of our investors might.

There’re a lot of people that come that you really like their business but it just doesn’t make financial sense for angels to invest. We looked at a wonderful company that a clothing company, we just love them.

They from Montana, but their business operates out of California. Well, they kept saying why don’t you invest in us and we’ll move back to Montana? But that doesn’t make any sense for them to be here. We’re not a fashion center, at all.

But we’d like to keep our doors open because part of things is we started our fund to be advocates and mentors for high-growth entrepreneurial ventures in our area.

This segment is part 6 in the series : Seed Capital From Angel Investors: Elizabeth Marchi, Frontier Angel Fund
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