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Seed Capital From Angel Investors: Venktesh Shukla, Chair, TiE Angels (Part 2)

Posted on Monday, Nov 1st 2010

By guest authors Irina Patterson and Candice Arnold

Irina: How many proposals do you receive per month?

Venktesh: It’s hard to tell, but so far I think we have received 60 to 70 proposals over the past three months.

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

Venktesh: Well, what we do is every month, on a rolling basis, we invite about eight companies to come and present to us face to face. And out of those eight, we select three for presentation to the full membership of TiE Angels at our monthly meeting. Out of those three, typically one company gets funded.

Irina: When you’re looking at a company, what are you looking for?

Venktesh: Angel investors look for a couple of things. One of them is, the usual thing, the idea . . . the team. Beyond that idea and the team, how big the market is, what stage the company is in, and how big the valuation is. These are things that everyone looks at.

Beyond that, there are certain angel investors who invest only if the company has plans to seek VC funding later on. That’s one group of angel investors. There’s another group of angel investors who invest only if there is a high degree of probability that company will not need to raise VC funding. It’s interesting how different people within the group have different sets of criteria for investments.

Some investors are looking for a path to how the companies will get funded by the VCs, and some are looking for companies that will never need VC funding. And there are some who have no bias whatsoever. They’re just looking for good opportunities and good ideas. So, there are three kinds of investors.

Irina: It looks like right now you’re doing about one investment per month, right?

Venktesh: There’s no hard and fast rule, but it looks that way so far.

Irina: Approximately how much does each angel invest?

Venktesh: It goes anywhere from $25,000 to $100,000.

Irina: What’s the approximate dollar amount you invested in the first company?

Venktesh: I think, in the first company, we invested, all together, about $600,000. I think the second company will be about $500,000, all together.

Irina: How long did it take for the first company to receive funding from your group?

Venktesh: It closed the deal within two weeks of presentation.

Irina: Did you have a valuation number for that company?

Venktesh: Yeah. The valuation was pretty decent.

Irina: Within a range of $1 million to $3 million?

Venktesh: Yes.

Irina: How much equity did you get in that company?

Venktesh: I think it was about 20% for $600,000.

Irina: Do you have an idea how long you want to hold on to this company and what return you might receive?

Venktesh: The expectation always is that the company will return at least 3x to 4x in two or three years. And unless you really expect that, you won’t invest.

Irina: What are your expectations, going forward?

Venktesh: The expectation is that, hopefully, we will be able to find companies that will be able to keep returning the money, a good return of investment to angels. You have to remember that angels don’t look at just return on investment. They also look at things like their personal involvement. So, people invest for all kinds of reasons.

Irina: At what stage of a business’s development do you usually invest?

Venktesh: Typically we are looking for a company that has some degree of traction, not necessarily in terms of if they’ve developed a product or they’ve not developed a product, but if they have received enough feedback to say that this is a viable thing. Those kinds of things, some kind of market validation.

Irina: So you wouldn’t necessarily fund an idea on paper, right?

Venktesh: Neither of the two companies that we have funded so far brought only ideas. Both of them had good traction. It’s not to say that [an idea on paper] won’t be funded. It just means that so far it’s not been funded.

Irina: Do you have any criteria for the size of the market?

Venktesh: No. The reason is that people have their own yardsticks as to how much return on investment they want. And those who want to see VC participation obviously are only going after things that have big markets to chase. Those who don’t want VCs in these deals at all, I think they’re happy with smaller deals so long as they have enough ownership so as not to get diluted.

This segment is part 2 in the series : Seed Capital From Angel Investors: Venktesh Shukla, Chair, TiE Angels
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