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Seed Capital From Angel Investors: Brian Cohen, Vice Chairman, New York Angels (Part 5)

Posted on Tuesday, Dec 28th 2010

By guest authors Irina Patterson and Candice Arnold

Irina: In the past 12 months, how many new investments has New York Angels made?

Brian: I’m going to say probably eight, which I hear is pretty good during a recession, and maybe five or six add-on investments.

Irina: Can entrepreneurs who are not based in New York pitch to your group?

Brian: Yes, but they would have to come to New York. We really want to meet them, we have to see them. They don’t have to be [based in New York]. It’s nice if they are, but if they’re not, that’s OK, too.

Irina: What is the typical dollar amount that goes into new investments?

Brian: The numbers, of course, are going down as it costs less to get some of these companies started. I would say that $500,000 is probably average, [or] a low, in some cases. It’s usually because it’s a tranched low to meet a certain objective, [and that would be] $250,000 to upward of $1.5 million.

Irina: How long does it take for a company to close the deal?

Brian: That’s a very good question. We encourage, at the presentation training, for that company to start putting their documents together for due diligence. That really helps a lot, so that immediately after the members’ meeting, members can say, “OK, let’s start.” That’s always a great thing because everybody wants to make sure time is used wisely. In good opportunity deals, you want to move the deal along as quickly as possible, particularly the administrative requirements, so that the entrepreneur feels that she’s being handled with a sense of responsibility and agility.

We start the due diligence as soon as possible, right after the presentation. Depending upon how long it takes and how complex the due diligence may be, a company can get funded in as little as 76 minutes, which was a record for one of our recent investments.

Everybody, literally, just wrote checks immediately around the table. That’s rare, but it can happen. It can take up to 60 days.  We don’t always have full-time people doing it. The angels volunteer to do it, as well as a number of Columbia University or NYU MBAs whom we use as interns. It’s a timing thing, and getting the data and talking to customers. Sometimes, it’s just a time-consuming process.

Irina: What is the typical range of valuation for companies that you invest in?

Brian: I suspect you’re adept at knowing that valuation in an early stage investment is as important to the entrepreneur – and not just in terms of how high, but in terms of its correctness – as it is to the angel who’s making the investment. So, an angel investment could come from a student from NYU who just had an idea, who doesn’t have a business plan, but we like the idea, we like the concept. And that could be as low as $1 million. But for more typical deals, it could be upward of $2 million to $5 million.

Irina: Is there a typical range of equity you seek?

Brian: No. That’s an interesting question, too. I don’t think anybody thinks in terms of that. At least in the long time that I’ve been doing this, I’ve never heard anyone around the table say, “Oh, let’s make sure we get a certain amount of equity.” No, it’s how much does this company need, at what point, to reach what goals, to prove their opportunity for success.

There is no answer I can give you about how much equity do we want or take. If it turns out that a certain amount of equity is what occurs, well, that’s what was the outcome. That’s a bad notion, I think, that entrepreneurs harbored for the longest time that, “They wanted a certain amount of equity,” and that’s not our approach.

If a deal is a $2 million valuation and we put in $500,000, what does that come out to? That’s 20% or something like that. That may be more typical.

Irina: Do you plan for exits?

Brian: Well, of course, as you know, it’s not up to us. As the research continues to show, the average exit time for an angel investment is up to nine or so years these days. There’re all sorts of new methods by which people are exiting, through second markets and so on. You could start looking possibly to selling shares to other people. We’ve had some exits within two to three years.

This segment is part 5 in the series : Seed Capital From Angel Investors: Brian Cohen, Vice Chairman, New York Angels
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