Seed Capital From Angel Investors: M. Todd Dean, Keiretsu Forum, Northwest Chapter President (Part 6)

By guest authors Irina Patterson and Candice Arnold

Irina: Do you have a sector preference?

Todd: I’d say it goes across the board. But we sold more medical device companies last year. I don’t know why, but we haven’t seen as many this year. It was just kind of one of those years where for whatever reasons, we started seeing more medical device companies.

This year, I’d say it’s much more across the board. In previous years, we’ve looked at a lot more real estate. We’re just starting to look at real estate again. It’s a roller coaster; it goes up and down in different sectors. We haven’t seen as much clean tech and sustainability stuff lately. Two years ago, we saw a lot of it.

Irina: What kind of real estate deals usually come to you?

Todd: We’ve had small projects where it might be 40 units of a condo conversion project or new condos, or new construction, or it might be a strip mall, or it might be new constructions.

One of our projects, which is in Boise, Idaho, is where we invested in 4,000 lots of a new construction per residential project. Again, it’s a cross section of real estate projects. Some are small projects, some are big real estate projects.

Irina: What is your preferred investment type?

Todd: Our preferred investment type is one that has a positive liquidity event. No, the answer is we prefer a priced round. So, our sweet spot is a Series A preferred round, priced with warrants. That’s what we ideally like to see, but that’s not going to happen. We do a lot of bridge rounds. We’ve done some bridge and convertible rounds. We’ve done some Series A. We’ve done some convertible in Series B. But our preference is a priced, preferred round with warrants.

Irina: Do you ever invest in deals that generate dividends over a long period of time?

Todd: It’s funny you bring that up, because that’s a trend right now. I don’t know if it’s going to stick around or not, but there are different terminologies for it. I know one term used for it is dividends. Another word would be a rev share participation, which is short for a revenue share participation. It’s paid out quarterly based on revenues. What that does is it creates a sooner liquidity for the investors so that they are able to get some money out in a shorter time frame.

But that creates some challenges if that company needs additional rounds of funding from a venture capitalist or institution. They’re going to take a stronger look at that company if they have a carve out for these rev share participation offerings. But we see more and more of them. We’ve participated in, I think, three of them in the past couple years. But I imagine we will continue to see them evolve.

Irina: Do you do debt financing?

Todd: We don’t do debt financing, but we have some guys involved with our group who do debt financing.

Irina: How long do you prefer to stay invested before exiting?

Todd: Well, the preferred would be a two- to five-year exit, but that’s not reality. Reality is a four- to ten-year hold.

Irina: How do you usually exit? M&A?

Todd: Yes, 95% mergers and acquisitions today.

This segment is part 6 in the series : Seed Capital From Angel Investors: M. Todd Dean, Keiretsu Forum, Northwest Chapter President
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