Seed Capital From Angel Investors: Malvern D. Lusky, Individual Angel, Houston Angel Network (Part 4)

By guest authors Irina Patterson and Candice Arnold

Irina: How many companies do you have under your belt that you’ve invested in?

Malvern: I’ve currently got seven.

Irina: That’s a pretty good number for an individual investor. They keep you busy, right?

Malvern: Right.

Irina: What is the typical valuation of a company you invest in?

Malvern: It’s $1 million to $7 million, but again, we sometimes get involved at slightly later stages, in conjunction with a VC, for example.

Irina: What percentage of a company’s equity do you usually seek?

Malvern: That all depends on the valuation of the company and the amount invested. Usually, the angel investors, as a group, will get 20%–40%.

Irina: What is the typical return you seek, and over what period of time?

Malvern: I would like to receive ten times return over five years, but the current economic environment has dropped the realization somewhat.

Irina: How do you usually conduct your due diligence?

Malvern: Usually, I form a deal team with other interested angels. We apply our collective skills to examine the company and discuss the benefits, problems, and possibilities.

Irina: It has been said that angels usually invest in someone they know personally. Is that true with your group?

Malvern: No. I do not usually invest in people I know. The only time I invested in someone I knew, it turned out to be a very bad relationship and a bad investment. That said, I do place a very high value on the quality and ability of the management and personnel. Even a great idea will fail without proper leadership. I want the management to be proven capable, yet willing to admit their weaknesses and be coachable. The manager who thinks he knows everything will usually lose your money.

Irina: Do you invest in teams straight out of school, or do you require previous business experience? If you only require experience, what level of experience do you require?

Malvern: I invest in the management. Accordingly, they must be seasoned management teams with proven track records. I have found that investing only in seasoned management teams, who have performed previously, will increase the chances of the venture’s success.

Irina: Do you invest only in complete business teams, or does a single founder also have a chance?

Malvern: I normally invest in a management team; however, I will invest in a single manager if I feel that he or she will be able to acquire the additional talent needed to fully execute the business plan.

Irina: Are there some character traits of founders that could clinch the deal?

Malvern: Dedication to the business, belief, and determination that they can execute the business plan. Also prior experience in the same or a similar industry.

Irina: What do you do with the businesses you don’t invest in, if anything?

Malvern: What I do with them depends on the quality of the deal. Deals with substance will be referred to another angel network or other angel investors. Deals needing improvement will be told some of the things I think they need. Some I will work with to make them quality deals; others will just get a verbal or written suggestion list. The remaining, or low-quality deals, are just rejected and wished good luck.

Irina: Do you have any sector preference?

Malvern: I will look at any deal that makes sense. I mostly invest in banks, consumer/packaged goods, food and beverage, biotech and life science, and entertainment.

Irina: Do you have an exit strategy, or would you invest in deals that can go on generating dividends over a long time?

Malvern: I do not want to remain in any deal for a lifetime. I like to see a three- to seven-year exit through a sale or merger or other profitable liquidating event.

This segment is part 4 in the series : Seed Capital From Angel Investors: Malvern D. Lusky, Individual Angel, Houston Angel Network
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