Seed Capital From Angel Investors: Manu Kumar, Founder And Chief Firestarter, K9 Ventures (Part 4)

By guest authors Irina Patterson and Ravi Bulusu

Irina: And what character traits in a founder would clinch the deal for you?

Manu: I will probably answer that in the negative, meaning I can definitely identify the traits of people who I would not invest in. The number one thing there would be integrity.

If I have any doubts about the integrity of the person, I will absolutely not work with that person at all.

The second thing is that I also want to be work with people who are at least willing to listen to feedback and advice and have the ability to analyze the feedback and make an educated choice.

The ability to listen and gather feedback from others is essential. If I come across someone whose integrity I cannot be sure of or if I am told the person does not listen, those are two characteristics that would preclude me from investing.

Irina: With so many businesses to look at, over 600 a year, what do you do with the businesses that you don’t invest in?

Manu: If I have a meeting with a company, either it is the first meeting or the second meeting, I try really hard to make sure that they are actually benefiting from that meeting in some way, that they are getting my honest feedback.

If I decide not to invest in a company after having gone through that process, I try and tell them what my reasons are. In a lot of cases, the reason for not investing is not related to the company, it is related to my fund, my thesis, or what I promised to my limited partners. That is a fit that a lot of entrepreneurs forget about. It’s not only a question whether they have a good business. They have to have a good business and it has to be a good match for their investor.

So, if I decide not to invest in a company, I will tell them exactly what my reason was for not investing in the company.

In some cases, I might like the team but not the idea. In those cases, I stay in touch with the team and am happy to help the team. They can e-mail me and ask questions and for connections and so forth.

Maybe I don’t like their current idea, but that does not mean that they cannot come up with something else in the future that I could be interesting for me to invest in. I am trying to stay in touch within the constraints – in the angel investing business, the most hard to come by currency is time.

It is a question of balancing the time between the companies that you do chose to invest in vs. those that you don’t. There is a fine balance where the companies I invested take priority over those that I decided not to invest in.

Irina: When you invest, do you think about your exit strategy?

Manu: Yes. In terms of the exit strategy, we are looking for a company that either has the ability to be acquired, and that is the likely exit strategy for somebody who is playing at the angel stage because going public is something that these days requires so much capital that it is not a feasible exit strategy. When I am looking at companies, I do think about who can be the potential acquirers for this company or does the company have the ability to stand alone and create its own space. That is a perfectly reasonable company to build, but in most cases, there is an exit strategy.

Irina: When you invest, what is your investment type?

Manu: It is preferred shares.

Irina: You have been investing for one year; how are your companies doing?

Manu: Very well. In fact, I am pleased to say that several of the companies have done their follow-on rounds. Two of the companies have already announced their follow-on rounds. My first investment through the fund was CrowdFlower, which was a company I invested in Q2 of 2009. It did its follow-on round in December. It was led by Trinity and Bessemer. CrowdFlower is doing very well.

The second company I invested in was Twilio in in May 2009. It did its follow-on round in December, and that was led by Union Square Ventures. For the third company I invested in, its financing round was led by First Round Capital.

At this stage, given how young the K9 portfolio is, there are not any exits because it has only been a year since I have been investing in these companies. But seeing who is coming in and doing follow-on rounds in these companies and how the companies themselves are doing is the metric that’s a good measure at this stage.

This segment is part 4 in the series : Seed Capital From Angel Investors: Manu Kumar, Founder And Chief Firestarter, K9 Ventures
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