Seed Capital From Angel Investors: Eric Paley, Managing Partner, Founder Collective (Part 2)

By guest author Irina Patterson

Eric: We view ourselves as unique for a handful of reasons. We have six out of eight entrepreneurs at the fund who actually run companies day to day. I think that is a really good model in terms of keeping us in our mindset as founders. When most of your partners are actually running companies every day, it is hard to deviate from your roots.

That’s the theory of why we’ve gotten into this. It has been pretty exciting.

Irina: What year was Brontes started, and when did you start angel investing?

Eric: Brontes was funded in 2004. David gave us seed financing, and we had follow-on financing from Bain Capital Ventures, Charles River Ventures and IDG Ventures Boston – now Flybridge Capital. We sold Brontes in 2006.

Around that time, Micah and I actively started investing with David and Chris. David started investing actively in 2004. Then we started fundraising for the fund in late 2008 when I left 3M. We closed the fund in May 2009, so we are about eighteen months from where we started working on it full time and only a little over a year from when we closed the fund.

Irina: Tell us a little a bit about the structure of the fund.

Eric: We have eight partners, and everyone is involved in the fund. Two of us, David Frankel and me, manage the fund day to day, so we are managing partners. We call the other six partners founder partners.

Irina: What is your geographical focus?

Eric: Given our roots, we put a lot of our energy into the northeast of the United States. But we do just as much investing in California. If it is Boston, New York, and Northern or Southern California, we could be very interested as investors. We have done more investments in California in the past twelve months than certainly most people would expect. We have been very active in all four regions.

Irina: What else makes your fund different from other seed investors?

Eric: We are very much a professional institution in the way we mange our fund. In terms of what is different from other people whom we respect in seed funds and microcaps, every partner in our fund is a successful company founder.

Everyone is an investor, but everyone is thinking from the perspective of what it takes to operate a great company, not from a financial extraction perspective. In a world of builders vs. extractors, we see ourselves as builders. We all have been in that situation.

We are all candid with our entrepreneurs about what is in their interest even if it is not in our interest. First and foremost, we put ourselves in their shoes, and as I said, six out of eight of us are still running our companies day to day, so it is hard to think any other way.

Another thing that is so different is we are truly seed-focused investors. We are not buying any options of future rounds. In fact, we don’t even reserve capital for future rounds.

We think this is the only way to avoid any kind of signaling issues. We don’t reserve any funds for follow-on financing. We are specifically interested in the seed round of the company. That is our entire focus. And I think that serves our entrepreneurs really well. Chris Dixon has a post on this blog, Builders and Extractors. It is all about signaling issues and why we think they are so important.

Irina: What are your current sources of deal flow?

Eric: Our deal flow is a mix coming from a wide network of people who we know. We get a lot of inbound entrepreneurs who get to us through people we trust who are interested in working with us.

We actually syndicate very aggressively with other funds. We don’t feel very strongly that in all that our investments we need to own some arbitrary percentage of the company. We are very happy to work with other funds. A lot of our deals come from other funds that we respect.

And the last critical source is that we are very active partners with other venture firms. We really believe in building good syndicates working with other investors. We don’t feel that we need to lead every deal we do.

We do lead a lot of deals, but it is a subset. We do more deals where we don’t lead. And so we get shown a lot of exciting opportunities by other funds that think we could be helpful or that one of our partners is well suited to support a company.

This segment is part 2 in the series : Seed Capital From Angel Investors: Eric Paley, Managing Partner, Founder Collective
1 2 3 4 5 6 7