Seed Capital From Angel Investors: Basil Peters, CEO and Fund Manager, Fundamental Technologies II (Part 8)

By guest authors Irina Patterson and Candice Arnold

Irina: What is your preferred investment type?

Basil: You really ask a hard question there. Five years ago, if you had asked me, I would have said common shares. I have been one of the strongest advocates in America of simple structures and common shares.

But in the past few years, I have had to rethink my own philosophies because the world has changed. Five years ago, I would have invested, most likely, in a common share structure. It made sense five years ago because it was much easier to put together a good board.

In a company with a common share structure, one of the fundamental common assumptions has to be that there will always be a good board in place. Today, that’s not very easy to do.

It’s actually very, very difficult to get a good quality board in place. As a result, what’s happening in the entrepreneurial ecosystem is that there’s a strong shift away from boards to advisory boards to mentoring to coaching to new models that are more appropriate for 21st-century companies.

In those scenarios, which are the most common today, you need to have a preferred share structure. This is not something that’s well understood in the economy, yet. This is the beginning of a trend that I think will be increasingly better understood over the next ten years or so.

Irina: Are there any other investment types that you make? What about debt or any type of investment other than preferred shares?

Basil: The question is a personal one, and some of my friends are exclusively lenders. But I am exclusively an equity investor, and the difference, I think, is probably genetic. It’s fundamental to the investor. I don’t even know if it’s a question of preference.

I don’t think I would be a good lender, even if I worked hard at it; even if I tried, I don’t think I could do it. And it’s the same with some of my friends who are lenders. They could try very hard but they would never be good equity investors. I think it’s in the genes.

Irina: Why couldn’t they become equity investors?

Basil: To make the point more simply . . . if you had ever gotten to know traditional bankers – people who had banks with storefronts – they almost never make equity investments.

Those people are lenders. Their instincts, their fundamental nature, is that of a lender, and how a lender behaves with a company is almost at the other end of the spectrum as to how an equity investor behaves with a company.

A lender, for example, is not aligned with the entrepreneurs, exactly the opposite. A lender’s goal is to preserve capital, primarily.

An equity investor, if well structured, can be perfectly aligned with the entrepreneurs. An equity investor’s goal is to maximize the value of the enterprise. They’re very different and mutually exclusive activities. For me.

I’m really genetically an entrepreneur, even though I’m an investor now. I was born an entrepreneur. I don’t really have a choice in my path in life but to be an entrepreneur. If I tried to go and get a job in a big company or a job in the government, I would fail miserably. Even if I tried hard, I could not do it. It’s a little bit the same as being a lender. I could try, but I wouldn’t be any good at it.

This segment is part 8 in the series : Seed Capital From Angel Investors: Basil Peters, CEO and Fund Manager, Fundamental Technologies II
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