Seed Capital From Angel Investors: Eric Pozzo, Fund Manager, Oregon Angel Fund (Part 11)

By guest authors Irina Patterson and Candice Arnold

Irina: So your group funded an airline company?

Eric: Yes. The interesting part of the story is the business that we invested in is not doing as well as everyone thought it would do; however, the company has been able to bid for a lot of these government-subsidized routes for central air services, where it’s part of economic development.

And they have a real business model where they can aggressively compete for these bids and win these bids, and they’ve been able to establish a solid, sound business that’s growing like crazy and is nicely profitable.

Now, it’s not the business we invested in, which was commuter [flights], but it’s still an airline business. It was very strange that we’d invest in an airline business when the conventional wisdom said, “How stupid can you be?” The fact that the company is doing very well is because it’s evolved. Anyway, that may or may not be an interesting story, but it’s a little out of the normal.

Irina: So, in essence, they’ve got government contracts now?

Eric: Correct. They have a couple of routes here to fly to the coast where these coastal cities no longer had commercial air service, and they felt isolated. Then they expanded – this is a Portland company – into Arkansas and Kentucky and Tennessee and these places, because all these folks have services. They have to get mail around, they have to get commuters around, and the government’s willing to subsidize some of these.

And they just had a model that said, “We can effectively compete, provide great service. Our subsidizers love us because we always meet our commitments. Our customers love us. And we make money.” It’s like, wow, who’d have guessed it?

The goal of the subsidies is to help a commercial service get up and running and eventually not need subsidies. For some of the little areas in Alaska, it’s the only way the government has to get mail from point A to point B in the winter.

Irina: So, that’s turning out well for you?

Eric: On paper it just looks great. I was just at their annual meeting and couldn’t have been more pleased.

Irina: What do you think angel groups could do better?

Eric: One of the things is just do the due diligence. I’ve been in these loose organizations of angel investors where the entrepreneur gives a pitch and then all the investors go back and look at their checkbooks and maybe meet with the entrepreneur once.

I think the trend is more collaboration within the groups with a formal due diligence lead and just getting the due diligence done. A lot of people invest on the gut. I know I’ve done a lot of that. You like the entrepreneur, it seems like a good idea, and I think part of it’s out of ignorance. You don’t know how to make a customer call. You don’t realize that any question is fair, and you just go out and you do your homework. It can 10, 20, or 30 hours but if groups are diligent about doing a lot of homework, they’re going to weed out some dogs and perhaps find some goodies in there.

Irina: What do you think entrepreneurs could do better?

Eric: The really successful entrepreneurs seem to come into a market with some level of deep domain expertise. They know that there’s a problem out there and they know what the customer’s pain point is, and they’re close enough to the industry where they can figure out how to solve it in a way that they can sell to the customer at a profit.

I’d say the most successful path for an entrepreneur is work for a large company for a while or work in real industry for a while, work in a sales position.

Get to know your customers out there, and pretty soon you’re going to find that you’re selling a product but the customers keep asking for something that’s different from what you’re selling.

Like, when I was working for Intel, our customers wanted something that was posted on a personal computer, not a minicomputer. And there are lots of reasons why Intel didn’t want to do that.

This segment is part 11 in the series : Seed Capital From Angel Investors: Eric Pozzo, Fund Manager, Oregon Angel Fund
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