Seed Capital From Angel Investors: Malvern D. Lusky, Individual Angel, Houston Angel Network (Part 5)

By guest authors Irina Patterson and Candice Arnold

Irina: What is your preferred investment type?

Malvern: I usually receive preferred stock but have also done straight stock or LLC deals.

Irina: Do you do debt financing? Convertible? Non-convertible? Terms?

Malvern: Most of my deals are preferred stock deals or a combination of preferred or common and convertible debt with warrants. I do not like straight financing.

Irina: What is your preferred exit strategy?

Malvern: My preferred exit strategy would be a straight cash sale at a high multiple.

Irina: What is your biggest investment success to date?

Malvern: Banks have been the best so far. But I am very hopeful for some of the other investments to pan out.

Irina: Could you tell me about an investment that had a particularly interesting story?

Malvern: One “first money” investments I made was with a longtime friend and business acquaintance. The company had a solid business plan to produce and market an insect repellent patch. The patch is worn on the body and helps keep mosquitoes away for up to 48 hours.

Management was trying to bootstrap the company with insufficient capital and an inexperienced team. Their previous experience was the promotion of sporting events and had nothing to do with packaged goods. They would not listen to me at all about this and would never get the expertise needed. When they finally hired a “president,” his experience was with electronic products and foreign currencies, not consumer packaged goods.

Management would not stick to budgets, took too much money for personal expenses, and did not fully pay vendors or leave operating funds in the company (signs of a definite downfall). Further, marketing materials were produced that were highly misleading. When I confronted them on this and other matters, they became distant and stopped providing information, which any investor deserves. Management refused to listen to my comments or experienced suggestions. Instead, they concluded I was only trying to impede their progress and they tried to get me expelled from the LLC, an act which is illegal according to Texas law.

To the best of my knowledge, they still have not gotten anywhere with the product, and other companies have already taken the lead and the momentum. Because of management’s arrogance, this company has failed! Never again will I choose to invest with friends or management which thinks it knows everything.

Irina: What is the single most important thing that angel-backed founders could do to increase their chances of success?

Malvern: The most important thing an angel-backed founder can do to increase the chance of success is to listen to their advisors. Often angel investors have a variety of experiences in the business world. Rely on them. They are a valuable resource. Let them fill in the areas where management may be weak.

Irina: What is the single most important that angels could do to increase their returns?

Malvern: The single most important thing that angels can do to increase their returns is to perform a complete due diligence. Make sure the management team is competent and experienced in the industry and that they know their limits and have good advisors for those areas in which they are not experienced.

Irina: Great insights, Malvern. Thanks for sharing.

This segment is part 5 in the series : Seed Capital From Angel Investors: Malvern D. Lusky, Individual Angel, Houston Angel Network
1 2 3 4 5