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Seed Capital From Angel Investors: Chenoa Farnsworth, Executive Director, Hawaii Angels (Part 1)

Posted on Monday, Oct 25th 2010

By guest authors Irina Patterson and Candice Arnold

This is the thirty-third interview in our series on financing for entrepreneurs. I am talking to Chenoa Farnsworth, executive director of Hawaii Angels, a non-profit organization of about 80 angel investors that has chapters on Maui, Oahu, and the Big Island.

Irina: Hi, Chenoa. Let’s start briefly with your background and how you got to this point in your life.

Chenoa: Prior to this, I had a company that did consulting for startups on strategy. About four years ago, I also started a venture capital fund with a couple partners. We started the angel group in 2002; I was one of the co-founders of that group and then took over the management of it last year.

Irina: What is your educational background?

Chenoa: I got an MBA from the University of Hawaii. I did my undergrad work at the University of California at Santa Cruz.

Irina: How is Hawaii Angels organized?

Chenoa: On the angel side, we have a group was formed in 2002 and we have now about 80 members. It’s a statewide organization so we have chapters on the Big Island and Maui. We have also a small sidecar fund called the Heaven Fund that co-invests alongside with the individual members. We started that fund in 2006.

Irina: How big is the Heaven Fund?

Chenoa: It’s about $4 million.

Irina: How many chapters do you have?

Chenoa: We have three chapters. We have chapters on Maui, Oahu, and the Big Island.

Irina: What is your geographic focus?

Chenoa: The majority of the companies we invest in are Hawaii companies. We tend to do about 80% Hawaii and 20% mainland U.S. companies.

Irina: Can you tell me a little bit more about the Heaven Fund?

Chenoa: The Heaven Fund mirrors the investments of the Hawaii Angels. The angel club is a club of individuals and they invest on their own, make their own decisions. Then alongside, we have the sidecar fund that does invest in basically the same deals the angels are investing in.

Irina: Is there anything that makes your fund different from other funds?

Chenoa: I don’t think so. It’s pretty traditional but, you know, we were one of the first to have a sidecar fund when we launched our fund in 2006. There weren’t very many other angel groups that had that. Now, it’s a lot more common.

So I would say that we’re one of the front-runners in figuring out a model that would work and proving out, basically, that having a fund benefits the club tremendously and adds a lot of stability and leverage to the individual investments that are being made.

Irina: Where do you get your deal flow?

Chenoa: Primarily local entrepreneurs. This is a small community, obviously. Everyone, one way or another, will hear about us and what we’re doing and apply for funding. We don’t usually have to do anything to solicit deals. We just get some business plans on a pretty constant basis.

Irina: How many deals do you get a month?

Chenoa: Probably between eight to twelve.

Irina: Out of those, how many deserve a closer look?

Chenoa: Three or four. We have two presenting per month.

Irina: You have monthly meetings?

Chenoa: Right.

Irina: Do you have membership fees for your angels?

Chenoa: Yes. We have an annual membership fee.

Irina: Do you have any fees for entrepreneurs who want to present?

Chenoa: No. We don’t charge fees for entrepreneurs, and we don’t believe in doing that. We have started a program where we’re on the cutting edge of what some clubs are starting to do, and that is that we do ask our presenters – after they’ve been through the process and raised money – we ask them for voluntary donations to the club. Like I said, it’s on a volunteer basis and it is considered a donation. They set whatever amount they’re comfortable with.

Irina: When you see a promising pitch, what’s your next step?

Chenoa: We have a screening committee that will preview the entire pitch then provide feedback to the entrepreneur about how to improve the presentation. If we think the presentation needs quite a bit of improvement, we’ll assign a mentor from the screening committee to work with the company.

He may work with the company for several months to get [the team] ready to come back in and preview again and, hopefully, get the green light. If they’re more prepared, we simply give them the go-ahead, and they come to the main meeting to present.

This segment is part 1 in the series : Seed Capital From Angel Investors: Chenoa Farnsworth, Executive Director, Hawaii Angels
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I wondering if angels are starting to become more savvy than institutional VCs. Are there better opportunities for smaller angel investments that exit before taking any institutional money?

Jim http://www.neocontext.com
Blog at: http://blog.neocontext.com

Jim Chiang Wednesday, October 27, 2010 at 11:00 AM PT

These are dramatically different investment strategies. Yes, there are smaller opportunities in which angels are playing early and exiting early, but this is not the domain of VCs anyway.

sramana Wednesday, October 27, 2010 at 11:35 AM PT