Seed Capital From Angel Investors: Eric Pozzo, Fund Manager, Oregon Angel Fund (Part 2)

By guest authors Irina Patterson and Candice Arnold

Irina: Is this, managing the fund, your full-time job?

Eric: Yes, it is. And a lot of it is to facilitate the selection of companies that present and also to make sure that the due diligence gets done thoroughly and well and politely in a way that works for the entrepreneur as well as the investors.

But the other major role of the fund manager – and I do have a colleague here as well – is negotiating the deals. It would be very awkward to have 60 different investors out there negotiating what a valuation should be and what the terms should be. So, those discussions are left to the fund management, and we use the template from the National Venture Capital Association for our term sheet.

We’ve neutered it a bit, taken out some more offensive terms. One of the benefits of being in the fund here is that the deals are professionally negotiated with professional series A documents behind them. And an investor who ends up with $25,000 ends up with a portfolio of five different companies, of which she has approximately $5,000 into each company, but in a very professional way.

Irina: Where do you get your deal flow?

Eric: In the greater Portland area we’re very well known, so if folks are looking for money in the greater Portland area or Oregon, chances are someone tells them about us, their accountant does, [or] they’ve read about us in the newspaper. We’re also closely associated with the Oregon Entrepreneurs Network, which is a real hub for fostering entrepreneurship in the state. But there are not a lot of sources of capital in Oregon, so if there’s a deal that’s right for what we might like to look at, they most likely will have heard of us or someone will point them to us.

Irina: What is the best way for entrepreneurs to reach you?

Eric: We have a website – and it lists my phone number and e-mail contacts. So, people just call and say, “Jeez, I’d just like to talk about my business for a few minutes.” This morning I had a meeting for an hour with two people who still have full-time jobs and wanted to meet off hours, followed by another meeting at 10 o’clock this morning.

I don’t know that either opportunity is going to be right, but I listened to these folks, told them what our sweet spot was as a fund, told them the process of how to go through the fund. My guess is there’s a good chance they’ll both apply for funding. We are also on Angelsoft, so people, when they formally apply, they apply through Angelsoft.

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

Eric: I probably talk to a couple entrepreneurs a week. But we have a formal application cycle, so we have 70 to 100 different businesses formally apply every year for funding.

Irina: So, about 7 to 10 a month?

Eric: Sure. That’s about right. We talk to a lot more companies than that, but when we talk to them about what we look for in a company, very often they don’t go forward and formally apply.

Irina: Out of those 70 to 100 per year, how many deserve a closer look?

Eric: We fund five a year, so if we get 100, it’s five percent. If we get 70 plans, it’s closer to seven percent.

Our goal is four to six a year. Based on the size of our fund, we don’t, by charter, fund companies under $400,000. So, no less than 15% of the fund will go into an opportunity. We can go as high as 40%, but in reality, the highest we’ve ever gone is $750,000.

Irina: What is your next step when you see a promising pitch?

Eric: The first step is to get them to apply formally. Our monthly meeting starts with our entire group discussing 7 to 10 of the applicants.

Basically, the discussion would be five to seven minutes per applicant. We make sure that someone is prepared to discuss the applicant. For instance, if someone in the group is working with the company as a consultant or referred the company in, we’ll make sure he’s prepared to talk three to five minutes about what’s exciting about the company, what we should be looking at. If there’s no one in the group prepared, my partners or I will call the company and learn what’s new.

This segment is part 2 in the series : Seed Capital From Angel Investors: Eric Pozzo, Fund Manager, Oregon Angel Fund
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