Seed Capital From Angel Investors: Dave Whorton, Founder, Tugboat Ventures (Part 3)

By guest authors Irina Patterson and Candice Arnold

Irina: What do you think in terms of returns?

Dave: Every company we get involved in, we’d like to believe has the potential to be worth $1 billion someday. The multiple over time is not important to us. What’s important is the scale of the venture and what it could be worth someday.

So, as you might imagine, with very early stage concepts, it may not be currently a one-step move for the company to become a really valuable company. That may require a couple of steps.

But we have to believe the market they’re going into is either large enough today or growing fast enough that it could be large enough to support their being one of the top companies in that market and given a valuation of $1 billion or more.

There are companies we see that we’re pretty sure, based on how we read them, that could be worth $200 million to $500 million and we can still get excited about that; for sure, that would be a wonderful market success for the company.

But we’d also like to know if there’s room to pivot and make it even bigger at that point. We’d like to see how phase one of the business could create $200 million to $500 million of value, and then phase two or three could double or triple that. It may not all be obvious up front, but we have to develop an opinion that that could be possible over time.

We’re not interested in companies that we think will be worth $50 million someday or $100 million someday. Really, it’s a reflection of our strategy.

We don’t make a lot of investments. Because we don’t make a lot of investments, we need to make sure that the investments we do make have the potential to be real winners. That’s just what we love to do. We want to build companies that matter, that are significant. We want to help entrepreneurs who want to do that.

Irina: So, those $50 million and $25 million companies are not the kind you want to work with?

Dave: Not if that was the plan. If we were just wrong and that’s the outcome that after a lot of hard work was the best we could do, of course, you do what you can. But that’s not what we go in looking for. I do know there are angels who would be delighted to sell a company for $15 million, $20 million, $25 million, $30 million. That’s just not our model.

Irina: At what stage of a company’s development do you prefer to invest?

Dave: Anything from a concept in somebody’s head to a company that’s launched their product and scaling revenues. That range is of interest to us.

Irina: How about their experience?

Dave: It’s mixed. We find that we’ve got a lot of second- and third-time entrepreneurs who come to us because they’ve heard good things about how we partner with entrepreneurs and we welcome that. We also work with and meet lots of first-time CEOs and have an opportunity to mentor and tutor them.

Irina: Can you identify any specific character traits in successful entrepreneurs?

Dave: The ones that we like are the ones who we just believe are taking a very long-term planning horizon and are fully committed to the ups and downs of trying to build a successful business. They won’t be deterred from that. That’s a really important criterion for us.

We also like ones who are clearly very bright, but also extremely receptive to input and feedback. They’ll take it in, they’ll process it. They may not alter course because of that, but they’re seeking alternative opinions and ideas, and they’re not narrow-minded in their execution.

We also like ones who have a tremendous sense of urgency, who just feel like every minute matters, every day matters. They’ve just got to get a lot done and got to try a lot of things, and if it doesn’t work, fix it and keep going. Those would be some of the traits.

Irina: What do you do with the companies you don’t invest in?

Dave: We don’t have a lot of time to do a lot of referrals, but if we do see one that we think somebody else would admire, then we’ll make those introductions. The challenge we have is that if we make a referral, we want to feel strongly about that referral because we feel, in a sense, we’re endorsing that entrepreneur by sending him or her to somebody else. And if we’ve only had an hour meeting, it’s hard to do that because we just don’t know that person well enough.

This segment is part 3 in the series : Seed Capital From Angel Investors: Dave Whorton, Founder, Tugboat Ventures
1 2 3 4 5 6