Seed Capital From Angel Investors: M. Todd Dean, Keiretsu Forum, Northwest Chapter President (Part 4)

By guest authors Irina Patterson and Candice Arnold

Irina: What’s the typical valuation of a company?

Todd: Typical valuations are about $1 million to $5 million. I would say on the high side, between $1 million and $10 million, but most of the companies we’re looking at are between that $1 million and $5 million valuation range.

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

Todd: It depends on whether we’re doing a bridge round or a price round, or whether we’re doing a finishing off round or starting a round. It’s across the board on that. Every company’s going to be different. Typically the companies are raising about $500,000 to $1.5 million to $2 million today, on valuations of $1 million to $5 million.

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

Todd: As big a return as we can get [laughs]. I’m trying to be funny. The answer is that the difference between a VC and angel is that VCs are hitting for the fences. Our investors are happy to get a two times and a five times and ten times return. If they get a three times return on their money in two to five years, they’re happy.

The reality is, on angel investment, you’re not looking at a return for about five to nine years for a very nice return. And that’s when you really get into the ten times-plus multiples, and that’s why we’re investing. We’re investing to not only diversify our investments and get a nice return, but also because we want to take that risk.

Irina: At what stage of a company’s development do you usually like to invest?

Todd: Typically we invest in what’s called the “growth capital range.” The companies have products. They have some customers. They may or may not have revenue or they’re close to revenue. Revenue might be anywhere from $200,000 to $1 million in revenue. Maybe a little bit more. But typically, go-to-market or growth capital, we invest in those companies.

Irina: Do you ever have companies come to you without customers?

Todd: All the time. We’ve invested in a number of those companies. We invested in one company that was six weeks old. That’s one of our earliest investments. But most of the companies are down the path.  In today’s society – and this is important – companies are doing more on less money than ever before.

[This is] because they have the resources, they have the Internet, they have the teams, they have the ability to get people to work for a lot less or for stock.

We live in a different time today where companies are getting a lot farther down the path before they want to ask for money. Also, it’s harder to raise capital today than ever.

This segment is part 4 in the series : Seed Capital From Angel Investors: M. Todd Dean, Keiretsu Forum, Northwest Chapter President
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