Seed Capital From Angel Investors: Malvern D. Lusky, Individual Angel, Houston Angel Network (Part 2)

By guest authors Irina Patterson and Candice Arnold

Irina: Approximately how many deals have you invested in so far?

Malvern: The total, including the ones I’ve exited, would probably be about 12, maybe more. But that includes deals that I’ve already exited for one reason or another . . . or they didn’t work.

Irina: Is this something that you enjoy doing?

Malvern: I very much enjoy doing this. I love it.

Irina: Specifically, what parts do you enjoy?

Malvern: I guess, really the part I enjoy most is the looking at the deal itself and trying to evaluate whether it will be any good, trying to see how it might fit, or what the company might be able to do. And a lot of them don’t fit, period. For one reason or another, I don’t think they’ll work.

Irina: You normally have about 100–200 pitches coming through you every year?

Malvern: Yes. When I look at them, I guess most of them are just kind of a quick gut check as to whether I think they’ll work or not. And most of those that I want to find out more about, I’ll find out more about. That doesn’t mean I’m going to invest in it, it just means I’m interested in it . . . in finding out more.

The normal “next steps” for a promising pitch include the following:

1. Meeting(s) with the principals to review in depth the business plan and financial projections.
2. Meetings with knowledgeable persons and Internet searches to gain familiarity with the industry, company, and product offered.
3. Meetings with other potential angel investors interested in the company.
4. Negotiate the deal terms.
5. Due diligence efforts to get comfortable with the company, the industry, the government regulations (if applicable), and the corporate governance.

Irina: Do you hold regular meetings where selected entrepreneurs have a chance to present? How often?

Malvern: The Houston Angel Network holds regular monthly meetings at which selected entrepreneurs have an opportunity to present.

Irina: What factors do you give the most weight to when debating whether to fund a venture?

Malvern: Once a pitch gets by the initial “feelings” test, the next most important item is the quality of the management. Without good management, even a good idea will fail.

Irina: On average you do about one deal a year, right?

Malvern: Usually, yes, one or two. It could be more deals than that, but I don’t think I would do more than four deals a year. And that would be a lot. I have only made one investment in the past 12 months.

Irina: What is the dollar amount you usually invest?

Malvern: Approximately $25,000–$50,000 per deal.

Irina: How often is your money the “first money” for a startup?

Malvern: I often invest early stage, but I do not like to invest in an idea on paper; I would like to see a company that has a product with at least a little track record, with real sales and repeat customers. Accordingly, I am not usually the “first” money; however, I am sometimes the first “outside investor” money. The others being bootstrapping or friends and family funding.

Irina: What should be the total available market (TAM) for the company’s product or service?

Malvern: The TAM would depend on the company, the product, and the potential customer base.

Irina: You also syndicate within the Houston Angel Network, right? Like, if a startup needs $1 million in funding, then all the investors in the network get a note about it, review the deal, and some put a certain amount they want to put in the deal, and they collectively invest $1 million?

Malvern: Right. I’m not investing $1 million myself. The way the angel network works is we get the deals in and that’s just a mechanism for finding out about them. And then individuals will decide whether they want to get into it.

This segment is part 2 in the series : Seed Capital From Angel Investors: Malvern D. Lusky, Individual Angel, Houston Angel Network
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