Seed Capital From Angel Investors: Eric Paley, Managing Partner, Founder Collective (Part 3)

By guest author Irina Patterson

Irina: How can entrepreneurs who are seeking funding reach you?

Eric: I think you have heard this from a lot of people. It is not rocket science: Go on LinkedIn, figure out who knows us, and get them to vouch for you as somebody they know and respect.

There are so many inbounds calls that it becomes hard to figure out what is and isn’t credible. We are really people driven, so just seeing an interesting plan by itself without having some notion of who that person is does not motivate us.

To us, the best way to come in the door is through someone we know and respect who will actually say, “This is someone I know, and I think he or she is terrific.” Because LinkedIn is such a phenomenal tool, it is not that hard to figure out who knows us.

Irina: On average, from all sources, how many pitches do you receive a month?

Eric: It is about one hundred, or maybe even more than that. For us, a small fund. We feel very honored, but it does feel overwhelming.

Irina: Out of all of those one hundred, how many deserve a closer look?

Eric: We probably have about one hundred legitimate introductions each month, out of which we meet about thirty to fifty. We take a closer look at ten of those and probably do about three investments.

Irina: If you see a promising deal, what is your next step?

Eric: If we see a promising deal that is introduced to us by someone who really believes in the entrepreneur, our next step is to have a meeting and see how much conviction we have about the entrepreneur.

And if at that meeting we’ve got a lot of conviction, the next step is to spend more time with him or her and do some industry-level diligence to make sure that we understand what that person is doing, and when that progresses to a point of conviction about the overall opportunity, we’ll invest.

Irina: What factors do you give the most weight to when debating whether to fund a company?

Eric: There are a lot of really talented people out there, but there only a few who really inspire us. And that is sort of our first criterion, that the entrepreneur really inspire us – inspire with confidence, inspire with vision.

To me, the business plan is less about being followed word per word and far more about how thoughtful the entrepreneur is about the business.

And that tells me a lot about the entrepreneurs. How do they solve problems? How do they analyze customers? Where did the idea come from? We put far more credit or weighting on the person than even the idea itself. Is this a really good market opportunity, and is this a high-velocity business that can grow fast? There are all these factors, but in so many ways it always comes back to the person.

Irina: How do you usually conduct your due diligence?

Eric: I think getting to know the entrepreneur is the overwhelming majority of our due diligence, and then of course we do make calls to try to understand the opportunity. We do reference checks to better understand the entrepreneur, but so much of it is just getting to know the entrepreneur. What is really key is how deeply that person is thinking about the business.

Irina: In the past twelve months, how many investments have you made?

Eric: Somewhere around thirty investments in the past twelve months. We do just about three investments a month.

Irina: What is your average dollar amount?

Eric: We invest anywhere from $50,000 to $1 million. And that has a lot to do with what the company needs and whether we are leading or participating in the deal. There are no fixed rules; we are doing an investment right now that is more than $1 million, but $50,000 to $1 million is the range in which we most frequently invest.

Irina: How long does it take a company to receive the funding?

Eric: It all depends. If we are really excited about the company and we are ready to go, we can close quite fast. In other cases, we are interested in seeing customer reactions or better understanding the problem.

Many entrepreneurs that I say no to because I just didn’t have enough conviction then come back in six months with a lot evidence that their business was progressing, with some shifts in the plan, and sometimes I get more confident and invest in them.

For them, you can say the process was much longer. I think it is situational. The question is, when can we get to a really good point of conviction where we are excited about the opportunity?

This segment is part 3 in the series : Seed Capital From Angel Investors: Eric Paley, Managing Partner, Founder Collective
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