Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups (Part 9)

By guest authors Irina Patterson and Candice Arnold

Irina: What do you think angels could do to improve the entire entrepreneurial ecosystem?

Dave: It seems the most important thing is providing small amounts of capital early on when companies are getting started and providing advice and support, either in business or product development or marketing.

Usually, it’s not the size of the check but the initial validation of the idea and some amount of capital to get started really is the role that the angel community plays for these companies. >>>

Seed Capital From Angel Investors: Lewis Hower, Executive Director, University Impact Fund (Part 7)

By guest authors Irina Patterson and Candice Arnold

Irina: Any more thoughts on funding at different stages of business’ development?

Lewis: If we are looking at something that’s a little more established, such as something related to microfinance or SME funding, we will look to fund at the later stage when there is more volume and ability to go into that space.

It’s going to be based more on quality relationships with the different funds and folks whom we’re going to be co-investing with and less on saying, “We do only very early stage” or “We do only later stage types of situations.” We’ll certainly take a balanced portfolio approach to our fund, recognizing how the overall perspective looks. But we won’t have any rules that say we can’t do one thing or the other. >>>

Seed Capital From Angel Investors: Lewis Hower, Executive Director, University Impact Fund (Part 6)

By guest authors Irina Patterson and Candice Arnold

Irina: But you will clearly be looking for some returns, right?

Lewis: Absolutely, yes. We view this space from [the point of] recognizing that there are strong business models and strong opportunities that if and when applied to the right sector and segment, there is the ability to get a considerable financial return. >>>

Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups (Part 8)

By guest authors Irina Patterson and Candice Arnold

Dave: When I receive a referral from someone, I always ask, “Are you investing?” If he’s not investing, I really want to understand why. Why does he think if he’s not going to invest that it’s a good opportunity for us to invest? I sort of hold myself to the same rules.

Only in the case where it’s an area that we don’t understand very well but we think it’s an interesting company would we do that. If there was something in clean tech or green tech that we don’t do and we thought the founders were great, maybe in that situation we might refer them. But if it’s a consumer Internet investment, small business, financial services, Web infrastructure or an area that we do invest in, if we’re not investing, I usually don’t refer those deals. Unless it’s like later valuation or something. >>>

Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups (Part 7)

By guest authors Irina Patterson and Candice Arnold

Irina: When you’re deciding whether to invest in a company, to what factors do you give the most weight?

Dave: Usually, product is the most important to me. But I think a lot of people say team is most important. I do agree with that, but it’s also really difficult to get an understanding right away of who those people are unless you already know them. If you look at the product, that’s probably the most useful information that reflects on the team. >>>

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.”
>>>

Seed Capital From Angel Investors: Dave McClure, Founder, 500 Startups (Part 6)

By guest authors Irina Patterson and Candice Arnold

Irina: So, what’s your return target?

Dave: I think 10x to 20x is the ideal target. Obviously, if we get more than that, that’s great. But that’s probably not the typical scenario. In most cases things don’t work and usually we get zero. I think we have a very different strategy from most funds.

Because we’re not looking for board seats or control, the amount of the company is not important, it’s just the return.

Hopefully at incubation or seed, we’re thinking in terms of a 10x to 20x return or better. At series A, we’re thinking somewhere around a 10x return and at series B, maybe a 5x return. >>>

Seed Capital From Angel Investors: Lewis Hower, Executive Director, University Impact Fund (Part 4)

By guest authors Irina Patterson and Candice Arnold

Irina: Have you made any investments already?

Lewis: No, we have not made any investments, yet, out of the University Impact Fund.

Irina: If an entrepreneur heard about your program and want to get in touch with you, what is the best way to reach you?

Lewis: We have a website, www.uimpactfund.com, that explains what we do and has our contact information.

Also, a lot of the deals and information and connections that come through our door come through our personal networks as well as the strong networks of the folks on our board who are advisors to our program. >>>