Seed Capital From Angel Investors: Eric Paley, Managing Partner, Founder Collective (Part 5)

By guest author Irina Patterson

Irina: Do you have a number for what is a reasonable size?

Eric: I think there is no set number. I need to believe that the entrepreneur can build a big company. It depends what you mean by niche. A $500 million–dollar market where there is no real competition and the company can attain a significant portion of that of total available market might be unappealing to most investors, but it doesn’t necessarily bother me.

I feel that whereas there are a lot of companies that go after very large markets, when I look at their opportunity in that market I actually think it is too small because I don’t think they could be that important relative to the market size. Again, I think it is a multivariable question about the market size and how important the company can be in that market. And I think you have to consider both.

Irina: As far as the founders, do they have to have previous business experience?

Eric: Our CEOs range in age from eighteen to sixty. We are very open to investing in first-time CEOs, and we’ve done a lot of that. There we see enormous energy, enthusiasm, passion, and engagement, and we are very comfortable with this.

We believe that some of it is DNA, not experience. But if someone is already a master of the art, it is exiting to us as well. We have no aversion to entrepreneurs who have experience. And many of the very important companies will be built by first-time entrepreneurs; therefore, we are very interested in them. We invest in both types of entrepreneur.

Irina: Do you have anything to say about the character traits of founders?

Eric: I think that enormous passion for what they are doing and a real thoughtfulness about the business they are trying to build are necessary. At the same time, entrepreneurs should understand that there are legitimate risks in the business. They should worry more about those risks than I do and have some clear thoughts on how to manage them.

I frequently talk about how great entrepreneurs have their eyes to the sky but their feet planted firmly on the ground. And what I mean is that they should have greater vision for their business than anyone else, and they should be able to convince people of their vision. That’s the inspiring piece.

But they must never lose touch with the ground in terms of what are the practical realities of getting there and how to overcome obstacles and be successful. And it is actually a pretty rare ability to be able to straddle the two.

How do you both have your eyes to the sky and keep your feet planted firmly on the ground? You have to be your toughest critic and yet never stop inspiring people about the opportunity. Most people do not do that very well.

Irina: Yes, you have to be pretty high up there, and you also have to be very humble.

Eric: That’s exactly right. I see a lot of entrepreneurs who have their eyes to the sky, but their feet are not firmly planted. And I see entrepreneurs who have their feet very firmly planted but really don’t inspire. And that is why the combination is valuable and unique.

Irina: What do you do with businesses that come your way that you don’t invest in? Is there anything you offer them?

Eric: Typically, investors referring companies to other investors when they are not investing tends to not work out. It is not usually a good thing for the company. It turns out to be not a useful way to help. What we try to do is to give the founders helpful feedback on their business but be to fair to them. If I am not investing, it doesn’t mean that there are fatal flaws in the business.

I feel that everyone expects I will be able to point to one reason that either explains why I’m not investing. And I think this is sort of an unfair expectation. It is not like one thing is stopping me from investing in them. In many ways, it is like a process of falling in love. So, what we try to do is be thoughtful.

Whether we investing or not, every business has risk. We try to help the entrepreneur brainstorm how to manage those risks. We also think about whom can we introduce them to who can create some interesting opportunities.

This segment is part 5 in the series : Seed Capital From Angel Investors: Eric Paley, Managing Partner, Founder Collective
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