Seed Capital From Angel Investors: Eric Pozzo, Fund Manager, Oregon Angel Fund (Part 9)

By guest authors Irina Patterson and Candice Arnold

Irina: We were talking about one of your investments, Columbia Power Technologies.

Eric: It’s a pretty early stage based on how far they have to go to get to where they want to be for us. They have not finished some of the designs on the turbine, and they haven’t gone to production in a lot of things.

It’s really a true angel investment where we believe they have a superior technology for harvesting wave energy, and if they are able to succeed in what they’re doing, it’s going to be a real winner and one that we’re delighted to be in on early. Even if it’s not a winner, we hope there’s a technology that can be sold and get a return of capital, maybe not everything we want. It’s really a high-risk, high-reward type of investment and way outside of what we normally do.

But who knows what’s normal with 60 investors? We have people out of any field you can imagine. We have veterinarians, emergency room doctors, folks out of Intel, folks out of Nike, you name it. We just have a lot of experience within our group that we can call upon.

And, we’re no more than one or two calls away from anyone we need to call on almost anything, including senators and representatives if we have to look into grants and things like that.

Irina: Do you help entrepreneurs with grants?

Eric: We don’t actively help them but we often find that the grant proposal, as well as the feedback from the funding agencies – you know, let’s say a grant is not granted, the feedback can be very helpful in understanding the risks and things like that. We look at having achieved grants as a traction point. It’s almost like having a customer when the NIH (National Institutes of Health) or someone like that gives you a grant.

And the feedback from the grantors, even if it’s a rejection, can be very helpful in understanding the risks and mitigating the risks and the opportunity.

Irina: What government agencies have you had experience with?

Eric: We’re in a company called DesignMedix that has some hybrid for antimalarial drugs. So, they’ll take a couple of compounds that malaria has developed a resistance to and they’ll bind them together. It confuses the plasmodia and can once again kill the malaria until it develops a new drug resistance.

They’ve applied for NIH grants over the years. We’ve been able to look at and share a bit of feedback from why the grants were either accepted and money was granted or why they were rejected.

As I mentioned, this wave power energy company had some grant proposals in, some of which they’ve gotten. I think they’ve received over $4 million in grants, and some of which they were told they were a little too early and these were the areas they were the areas they were areas they were too early on.

We’ve been able to review the feedback and say, “Jeez, that’s kind of exactly our perception. We thought in these areas they’ve done well. And, yeah, in these areas they haven’t done well. We’re also concerned but that’s the risk we’re willing to accept. And it looks like we’ve identified the same risks.”

Irina: When you invest, what is your preferred investment type?

Eric: Series A preferred is our typical investment now. Our first year, we had only a $900,000 fund so we did four convertible notes in the more than $200,000 range.

As I mentioned, one of those companies had a suboptimal exit, so the note worked out in that everybody got their money back plus interest. But in the other three, two of them went on to raise a fair amount of venture capital pretty soon after. With the large amounts of capital, $4 million to $5 million of capital, [they had] much higher valuations.

So, when the funding went in, maybe the company was worth $2 million but the valuations upon the VC funding were $5 million, $6 million, or $7 million. And even with warrant coverage and everything, there was a feeling that the early investors didn’t get fully compensated for their risk because they ended up converting at some pretty high valuations with the venture capitalists.

The feeling is that with $500,000 or $750,000 going into an investment that’s probably going to be in the $1 million to $1.5 million range, that’s enough money to drive a series A investment.

This segment is part 9 in the series : Seed Capital From Angel Investors: Eric Pozzo, Fund Manager, Oregon Angel Fund
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