Seed Capital From Angel Investors: Mike Hirshland, General Partner, Polaris Ventures (Part 7)

By guest authors Irina Patterson and Candice Arnold

Irina: What are some character traits that you look for in entrepreneurs?

Mike: You know, if we had to generalize, the things that most likely to get us excited, that correlate to success are extraordinary product abilities, in terms of functional expertise, and then that intangible but very important entrepreneurial spirit, which is a combination of passion, vision, dedication, and stick-to-it-iveness.

Irina: What about business teams? Do you require them to have a team? What do you do when they don’t have a team?

Mike: That is one of the inherent challenges of what we do at the very early stage. It’s pretty unusual for a founding team to have a well formed business leadership or business team.

Most often, you have technical and product founders, and that’s usually the best. Most successful startups start with really strong technologists and/or product people. In a lot of instances, the first year of the company’s existence, you’re not really ready for business leadership. That person would just get in the way.

One of the challenges is trying to project and then actually work through. As the company matures and you get a product into market and things go to market strategy, positioning, sales and sales execution, revenue model, business development start to come into play. Figuring out how you graft those capabilities onto the team can be tricky.

There’s no magic wand or easy answer. It’s very much a case-by-case basis, understanding what you need to succeed, but then also being sensitive to what types of business people will work well with founders. You have different types founders who work well with different types of people. It’s a hard part of the business but also, I think, for me, one of the more rewarding aspects.

Irina: What do you do with the entrepreneurs that you don’t invest in? Do you refer them to anybody?

Mike: It depends. In some instances, absolutely, and in some instances, no. If for some reason we think it’s not a good idea or not a compelling entrepreneur, then we don’t want to make an introduction to somebody who’s going to have the same conclusion and then say, “Why’d you make the introduction?”

But in lots of instances, we really like the founder, we think it’s a nifty idea, it’s just not quite right for us. But we love the idea of trying to help him out. We absolutely love to do that when we can.

Irina: Do you have any sector preferences?

Mike: Again, we’re broadly diversified. So, the answer is, yes, but there’s probably 20 of them. In the technology sector, we’re doing a lot of on-demand software and cloud computing–related investments. We’re doing a lot of consumer Internet and social Web investing.

There’s a category of businesses that are Web services for Internet businesses, things where 10 years ago maybe shrink-wrap software for brick-and-mortar businesses would have been the application. Today, it’s an online Web service that’s being sold to an Internet business. And then there’s a lot of stuff happening in the marketplace with data and advertising. We’re an investor in Quantcast, which is right in the crux of that. I think that will continue to be a fruitful category.

Irina: What is your preferred type of investment?

Mike: Typically, it’s been preferred shares, although convertible debt is becoming more common. We’re not averse to convertible debt with a cap.

Irina: How long do you prefer to be invested in a company?

Mike: It’s too hard at the outset to project the entire life cycle of a startup. Typically, we look to the next financing stage. So, we invest, let’s say it’s a $1 million round, we think that that’s 18 months worth of capital. The idea is to understand between now and 18 months from now what is the opportunity for the company.

If things go as planned and the company’s executing, and it turns out the market opportunity really is a pretty exciting one, then you want to go out and raise a substantially larger venture round and really go for it and try to build a really big business. In some instances, during that first 12 to 15 months, what becomes clear is you built a really good product and people are using it, but what you’re doing is building a product or feature, not really a company.

This segment is part 7 in the series : Seed Capital From Angel Investors: Mike Hirshland, General Partner, Polaris Ventures
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