Seed Capital From Angel Investors: Mike Hirshland, General Partner, Polaris Ventures (Part 5)

By guest authors Irina Patterson and Candice Arnold

Mike: No founder has the complete package. Whether it’s great technical chops or product chops or business and strategy acumen, you never have a founder who has all of that.

When you define what the company needs to do, during the next, say, 12 to 24 months, to be successful, the founding team needs to be pretty darn good at that. In many instances, that’s more technology and product oriented than it is market based and stuff.

The day you close the financing, you wake up the next morning, you’re at a board meeting, you’re going to be sitting there looking at the management team, the founding team, and you want to feel excited that they are really good at whatever needs to be done in the immediate term.

The other angle is the combination of the founders themselves and the opportunity. Are they going to be magnetic enough to attract the other pieces of the team that are missing at funding?

Obviously, that’s an intangible thing. It’s very subjective. I think that’s an important piece of what we do, try to make that calculation, whether the team is going to be good enough for what needs to be done in the short term and attractive enough to be able to build a great team for what needs to be done over the longer term.

Irina: How is Polaris different from other investment firms?

Mike: At a high level, the most striking difference for many – not all – is our diversification. Many VCs have strong, deep areas of expertise. It’s just a fairly narrow set of different markets.

We have what we think are some of the world’s best biotech investors sitting in offices next to some guys who we think are among the best software and Internet technology investors. That’s a pretty important ingredient of how we work, but it’s different from many.

The other difference – again, different from some but not from all – is while we are a larger fund and we do some later stage investing,  which is really our bread and butter, and for many of us, our passion is very early stage investment, seed investment.

For example, in our current fund, we’re going to do about 30 seed deals, which is a lot. A fairly substantial majority of large, established VCs do very little seed investing. It’s primarily series A or series B. For us, it’s an important part of how we do what we do. It’s been successful for us, and it’s also the stage that we love, so it’s an important aspect of our investing.

Irina: In the past 12 months, how many seed investments have you made?

Mike: Probably seven or eight.

Irina: What was the dollar range per investment?

Mike: It’s $100,000 to $750,000.

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

Mike: Well, it varies widely, but in some instances, we have made a commitment, a seed deal, inside of a week and funded maybe two or three weeks after that.

Irina: How do you conduct your due diligence?

Mike: At the seed stage, there’s much less diligence to be done. Most of it’s really the entrepreneur and the idea. Increasingly, one of the things that we’re pleased about, because it’s become so much easier to build and launch Internet software products and consumer Internet businesses, in many instances, seed deals already have a product.

Sometimes they have a product that’s been launched. Increasingly, one of the things is not just the product but also user behavior, and get a sense of how the marketplace is responding to the product. And then in some instances, we’ll want to get other people’s perspectives on how exciting the opportunity is.

Folks who we think are experts in a particular domain, we’ll sometimes ask to spend a little time hearing the pitch and meeting the entrepreneur and sharing with us their thoughts on the opportunity. For a seed deal, in many instances, that latter piece does not come into play. It ends up being a pretty quick decision, and we just make an evaluation. We spend a little bit of time with the team.

Irina: Do you think in terms of valuation when you invest in seed deals?

Mike: Yes. We’re always thinking in terms of valuation and ownership. At the seed stage, that’s not always as important for us. For seed deals, typically we get a small amount of ownership.

This segment is part 5 in the series : Seed Capital From Angel Investors: Mike Hirshland, General Partner, Polaris Ventures
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