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Seed Capital From Angel Investors: Kiki Tidwell, Board Member, Northwest Energy Angels (Part 2)

Posted on Thursday, Dec 2nd 2010

By guest authors Irina Patterson and Candice Arnold

Irina: How many deals have you funded since inception in 2006?

Kiki: On our website, it says over $3 million in 18 companies. But this year, our total investment year to date is $926,000 in seven deals, and that’s in 11 months. Well, it’s 10 months, because we haven’t done November’s meeting. We’ll have our meeting next month.

Irina: People who apply can be based anywhere; they don’t have to be in the Northwest, right?

Kiki: Right. But they would have to understand that it’s going to cost them some airfare to present, and it would be a slightly larger hurdle for our members to do adequate due diligence. I would imagine, if there were a group of angels who were very interested in a company, they would send one or two of them out to the company to do due diligence rather than everybody going.

Irina: Are there any fees for entrepreneurs to present their companies?

Kiki: I think it’s a $100 application fee.

Irina: How much does each angel typically invest?

Kiki: Most angels are comfortable with about $25,000 to $50,000 in a company. So, entrepreneurs should really think about is their company right for an angel group because there’re not huge dollars generally available.

Even if, for example, five or six angels get together, you’re talking about an investment pool of $300,00. It’s not like $2 million or above on a round that we can help them with.

Entrepreneurs really need to be logical about whom they’re applying to. Some entrepreneurs look at high net worth individuals as having the ability to give them millions of dollars. It wouldn’t be prudent for us to put all our money in one deal, even if we have the ability to fully finance someone’s company. We spread our risk over a lot of companies.

Irina: What is the range of a total investment from your group?

Kiki: I think the lower end is $25,000 as the minimum. On the high end, you know, I’ve invested up to $350,000 on a particular deal. It does range. I’d say that $350,000 would be pretty unusual.

[As a group], angels like to have a minimum per round that’s going to get funded. So, they like to know that there are other angels in the deal. I’d say the minimum is probably $250,000 to $1 million, and $1 million would be on the high side.

Irina: How do you usually syndicate your deals?

Kiki: We do it through Angelsoft. We share deals with several other groups in our area. We also let them know about a particular deal if we’re excited about it.

Irina: How does it work through Angelsoft?

Kiki: Entrepreneurs put their company information on a password-protected site. The different angel groups all have a password to access the deal flow.

When we conduct due diligence, we’ll also post documents and information in another protected site so that people who are on the due diligence team can access that information and all be on the same page as to what has been collected, [things] like company interviews, customer interviews, market forecasts, whatever there is.

Irina: What about other angel groups that are interested in investing in a particular company?

Kiki: They can all see the companies’ initial information posted on Angelsoft, that it’s an active deal for funding. If they want to join the due diligence team, they would be allowed to have a password to the due diligence site.

Irina: What is the typical valuation of a company that you invest in?

Kiki: A lot of times, we will invest in a convertible note. As angels, we’re pretty early on, and rather than try to nail down a valuation very early, we will just invest in the note and peg the valuation to the next series, like a series A investment round.

Irina: What percentage of equity do you usually seek in a company?

Kiki: I think maybe 25%. Really, it will vary.

Irina: How long to you usually plan to be invested in a company?

Kiki: We are pretty influenced by Basil Peter’s early exits theory. The majority of companies are purchased under $30 million. So, if we are trying to get 5x on our investment, we are going to be investing at a $2 million to $3 million value of the company early on so that we can receive an acquisition of our company later, as opposed to the venture capital exit, which is more about looking for a large IPO.

This segment is part 2 in the series : Seed Capital From Angel Investors: Kiki Tidwell, Board Member, Northwest Energy Angels
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