Seed Capital From Angel Investors: Lewis Hower, Executive Director, University Impact Fund (Part 5)

By guest authors Irina Patterson and Candice Arnold

Irina: Do the partners participate in your conference calls with entrepreneurs?

Lewis: It depends on the situation. Typically, if we’re working just for the entrepreneur and helping him, it’s just with the entrepreneur.

If it’s working with one of the funding organizations, a lot of times the call will be with me and our student team that’s been assigned to that deal and then the partner or director at that firm or foundation. At that point, it’s less about questions and more that’s when we produce an interim report or a rough draft, if you will, that allows that person to say, “I want you guys to spend more time on one certain element,” or, “This looks good. Let’s just polish it up and we’ll be good to go.”

Irina: Do you conduct due diligence during your own screening process?

Lewis: Yes. When we’re deciding whether to work with that organization or entrepreneur, we do dig in in our own sense of understanding who and what they are. This impact and social entrepreneurship space is still a relatively small community, so we’re able to make a few calls to folks who we know who have worked with them in the past or know where they came from.

If it is an entrepreneur who was introduced by one of our partner funds or foundations or from somebody we who know and trust in the space, we do a bit less due diligence. But if it is somebody who we do not know, who perhaps found us through our website, then yes, we do a deal screen to understand who and what they are, and more so to make sure that the services that we can provide will be of assistance as well as be good for us in the development of our program.

Irina: When you are up to speed, what is the dollar amount you expect to invest?

Lewis: There’s no perfect science to it, but it’ll be likely somewhere between $50,000 and kind of on the higher end, $500,000 to $750,000.

Irina: Do you have an idea of what valuation you’ll be seeking?

Lewis: It’s interesting that in the impact space, it still is such a nascent industry that there’s a broad spectrum. A lot of them tend to be earlier stage. It’ll be a little blend of both. There will be some that will be seed stage, but where the sweet spot will be will be working with some of the larger funds [where] the total ticket size of that investment will be on the order of $3 million to $5 million and we will just have a small carve-out of that.

So, the valuations will be a bit bigger and will be a bit more of a later-stage type of investment. But, again, the industry is very new, so there’s not a broad spectrum of lots of high-quality deals that are coming through at a certain ticket size. A lot of it ends up being a slower progression of some of these organizations that maybe work with a foundation in the earlier days and get some kind of seed and convertible debt type of funding to get them to the point where come a series A round, they’re going to be a strong organization.

Irina: Do your partner foundations give seed money or grants to the recipients?

Lewis: A bit of both. It depends on the situation and the type of investment. Some of them do provide grant dollars; others are looking for program-related and mission-related investments. So, ones that are clearly still programmatically aligned to the goals and then the charitable mission of the foundation, but it is into an organization or an investment that can provide some sort of return.

Irina: Will you be seeking equity in the company? If so, what would it be?

Lewis: Again, from our investment as a piggy back alongside some of these partner funds and things like that, our, because we are writing a smaller ticket, our equity participation is a portion of what that larger fund’s is. The way that the space works is similar and congruent to the traditional VC space where on any given round – if it’s an early-stage round – the fund is going to be looking for 25% to upward of 40%, but then the impact fund’s specific portion of that will be pro rata based upon our carve-out alongside that.

This segment is part 5 in the series : Seed Capital From Angel Investors: Lewis Hower, Executive Director, University Impact Fund
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