Seed Capital From Angel Investors: Chenoa Farnsworth, Executive Director, Hawaii Angels (Part 4)

By guest authors Irina Patterson and Candice Arnold

Irina: Do you plan your exit strategies?

Chenoa: We’re trying to be a little more aggressive about planning and trying to bring more M&A activity into the state. It’s hard; because we’re so isolated, the M&A activity is very slow. That’s something that we’re working on as a club and fund manager, we’re trying to bring more of that type of activity in.

Irina: How many of your portfolio companies have revenue at about $1 million and above?

Chenoa: Maybe ten, and I’m guessing.

Irina: What is your biggest success to date?

Chenoa: That would be Hoku Scientific that had the IPO.

Irina: Do any of your investments have  a particularly interesting story?

Chenoa: We’ve invested in a company called White Oceanic Technologies. They’re an aquaculture company. They’re still early stage, but what they are proposing to do is pretty radical, which is to put large, open ocean cages off shore here in Hawaii, and they will grow tuna for the sashimi market – high-grade tuna, which is a fish that’s being overfished worldwide.

The cages are the size of a football field in length. [A standard American football field is 120 yards or 109 meters.] These are very large open ocean cages that are kept in position by geostatic positioning, by a motor, like a boat. And there’s a net mechanism built into the cage that would allow people to harvest the fish.

I think that’s a company that’s interesting has both the ability to make a big impact on our environment and our ocean in a positive way and also is a company that could be quite profitable because the fish, the ahi tuna, demands a very high price in the fishing market, especially in Japan.

Irina: What do you think entrepreneurs could do to increase their chances of success?

Chenoa: Never stop raising money. I think many entrepreneurs, they raise a round of money and they think, I’m done. I did that. And they’re not. They don’t think about where the next dollar’s going to come from. They start thinking about that too late, and it can lead to many problems of just not thoughtful planning with regards to fundraising.

I think that entrepreneurs do tend to focus too much on things like R&D and perfecting a product instead of getting a product out onto the market and proving the market before doing a whole bunch of R&D and waiting until they have the perfect whatever before they go to market.

I think some entrepreneurs who are good at raising money run into the opposite problem, which is that they raise too much money such that they build up an infrastructure that’s unsupportable, and they can shoot themselves in the foot that way. So, staying lean, I think, is important because over building is not just a resource issue as far as money; it’s also a resource issue as far as time and focus. A CEO will often get distracted by management issues instead of focusing on executing the business. They have built up too big too fast.

Irina: Do you ever invest in deals where you would be getting dividends instead of exits?

Chenoa: Yes, we do, and we’ve seen an increase in some of those deals structured like that. I think we’ll continue to see more deals like that as the exit markets dry up.

Irina: What are your capital requirements?

Chenoa: Obviously, we prefer to invest in companies that require low amounts of capital, especially given that we’re out here in Hawaii and follow-on capital is always an issue. So, the further a company can get on small dollars, the better.

Irina: Is $150,000 your smallest round?

Chenoa: That would be the smallest amount from our angels. I don’t think there’s ever been a round that small. You know, these folks are raising money from other individuals and people who are not part of the club. Probably the smallest round would be $500,000.

If the round is less than $500,000, we don’t take a look at that. That would be too small of a deal.  It’s got to be some size before we’re going to take a look at it.

Irina: What do you think angels could do to improve their chances of success?

Chenoa: Well, I think that what history proves is that the more involved you are in your investments, the better a return you will get on those investments. Many angels just throw the check over the transom, and that’s it. They never interact with the entrepreneur again.