Seed Capital From Angel Investors: Malvern D. Lusky, Individual Angel, Houston Angel Network (Part 3)

By guest authors Irina Patterson and Candice Arnold

Irina: How long does it take for a company to receive funding from your group?

Malvern: It usually takes from one to three months to get comfortable with the company and complete due diligence.

Irina: And the people are very important, right?

Malvern: Oh, absolutely. The people who are running the company are key to it because if there’s a problem with them, then the company will never make it, never get off the ground. If they’re not experts in their fields, then they need to understand that, and they need to get people who are; they need to be coachable. I’ve run across people before who thought knew everything and wouldn’t listen to anybody or thought they were giving up too much to their company for whatever reason. Those people never get anywhere.

Irina: You invested in some banks. Are banks looking for angel financing, too?

Malvern: Well, I guess in a way it is angel funding. They’re not really looking for angels but they are all private places, new banks getting off the ground. I’m actually looking at two of them right now. One is already off the ground and I’ve already invested in it, but it’s looking for a second round. And then there’s another new one that just started and I’m trying to figure out what to do. They usually require a lot more money than just the $25,000.

Irina: What size do you usually look at?

Malvern: With a bank, my investment is usually $50,000 to $100,000 minimum. The whole deal for a bank is . . . a lot of it will depend on state law and what they have to raise in order to get a charter – what they have to have as the minimum capital. And that’s usually anywhere between, I don’t know, $7 million and $20 million, depending on the state and what the requirements are.

Irina: Does that money also come from the HAN?

Malvern: No. Those have not come through the angel network. We did have one bank that came through the network that I know of, which I did not get into.

Irina: Are banks a good investment for you? How do you cash out of a bank?

Malvern: The bank will eventually sell to a larger bank.

Irina: And it happens within five to seven years?

Malvern: Well, five to ten years, anyway. It used to be they could do it within five to seven. Now, in this current environment, it will probably take a little while longer.

Irina: You’ve invested in banks, have you exited from any? Were they profitable exits?

Malvern: I’ve exited from some. Yes, otherwise I wouldn’t be interested in them anymore.

Irina: You don’t advise people to invest with their friends, right?

Malvern: That can cause conflicts. In one particular case, my friend was one of those people who thinks he knows everything and won’t take any advice. And I was kind of hoping I could change that.

Irina: But you can’t change people, can you?

Malvern: No, and in this particular case, he even tried to get me out of the company, which was totally illegal. He thought I was requesting too much information, and I wanted to try to keep him on a more honest and ethical track than he was going down.

Irina: So, once you invest in a company as an angel, do you provide them with more than money, like advice and help?

Malvern: It depends on the company, but yes. Sometimes, yes I do. One company I’m on the board of, others I go to meetings fairly frequently and we discuss how the companies are doing. I do like to be kept informed as to what’s going on, and I think other angel investors do as well. One of the good things about angel investing is that angels are usually kind of hands-off, except that they are a great resource for advice. They have a wealth of experience, generally, that you can tap into – probably – free because that’s all you’ve got access to. They’re invested in the company. If you’ve got any questions, call them and ask them.

This segment is part 3 in the series : Seed Capital From Angel Investors: Malvern D. Lusky, Individual Angel, Houston Angel Network
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