Seed Capital From Angel Investors: Eric Pozzo, Fund Manager, Oregon Angel Fund (Part 5)

By guest authors Irina Patterson and Candice Arnold

Eric: In our last financing, we, the Oregon Angels Fund, put in $650,000; there was another $440,000 that came in from just our investors who are within our group. That was a record but typically, one of our investments is followed by a $100,000 to $200,000 of side-by-side investments from people within our investment pool.

Irina: Does the state of Oregon also receive a profit from their matching  investment?

Eric: Correct. The state is an investor like everyone else, looking for a return on investment. I think everyone in the fund likes the economic development aspects, the fact that we’re helping entrepreneurs, we’re helping create jobs, more taxable income in the state and all of that.

But the reality of it is our first three goals are to make money, make money, and make money. Everything else is ancillary. And, yes, the state of Oregon is in this to get a positive return on investment.

Irina: Is it a certain program that they have?

Eric: Yes. It’s called the Oregon Growth Account. What they do is, they also invest in venture capital funds. If a fund is raising $30 million or $40 million, very often, the state will commit $5 million or $10 million. I think the typical investment would be about $5 million.

And they’ve tightened up the rules, so it’s subject that if you have $5 million of Oregon money in a $40 million fund, we would like to see you invest at least $5 million of that fund in Oregon.

These companies are evaluated based on their ability to provide a return on investment. And, of course, the state likes that the money is being invested in Oregon and creating jobs and businesses and companies, but the particular group that’s investing is in it for the return on investment.

Irina: How long does it take for a company to receive funding from your group?

Eric: It’s about a 10-week process. Basically, people applied on October 7, with our last application deadline. We’re moving to monthly application deadlines. So, on October 7 a company applied. On October 18 we selected two of the 15 companies that applied to present at our mid-November meeting.

So, we’re right now doing due diligence on these companies. At the mid-November meeting, the due diligence team can report, do we want to continue, do we want to defer, or do we want to pass? If it’s continue due diligence, typically more people come on board to the team and we do a lot more detailed research.

With some of these companies, we end up with hundreds of hours of research into them with the idea that at our mid-December meeting, we will be voting on whether to invest in companies that applied on October 7.

Irina: What is your typical range of valuation?

Eric: It depends on the opportunity. The rules of thumb out there are, if it’s a software product that’s just in Beta or is achieving some level of decent revenue, that doesn’t have a ton of money into it already, a company at that stage can be valued at $1.5 million to, say, $3 million . . . somewhere in that range.

Another rule of thumb is each tranche of capital takes about a third of the company. Let’s take a company that has had $200,000, maybe $300,000 of smaller angel money in it and friends and family and founder money in it; and they have a product that’s just starting to ship; and maybe they’re starting to get $1,000 to $2,000 a month of revenue; and they’re looking for $500,000 from us but they really need $1 million. We might structure a deal such that we put in $500,000 contingent on them raising the full $1 million at, let’s say, a $2 million valuation. That gives them a $3 million post. That’s the ballpark.

A company may have $500,000 to $1 million of revenue but they’re trying to make that transition from bootstrapping to a high growth company with a more well-rounded professional sales team or something. Perhaps they’ll get a bit higher valuation. Maybe that would be a $2.5 million to $3 million.

But we’ve also look at some companies and invested in some companies that – one we did last year was close to $3 million in sales, and it’s really doing a series B round. But they’re here, local, and they’re the fastest-growing company in the region, and we were invited in to help fill the round out. That had a much higher valuation, but the company was also a lot further along.

This segment is part 5 in the series : Seed Capital From Angel Investors: Eric Pozzo, Fund Manager, Oregon Angel Fund
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