Seed Capital From Angel Investors: Mike Hirshland, General Partner, Polaris Ventures (Part 8)

By guest authors Irina Patterson and Candice Arnold

Mike: If a company is not coalescing into something where you think it’s a very big outcome, in that case, what you want to do is think about either getting cash flow positive on the existing positive, or if there’s going to be a need for more capital, keeping it pretty small so that you don’t overfund the company and end up putting the entrepreneur in a position where she can’t be successful and also have the investors be successful.

A lot of seed deals appropriately end up in this category where they raise a million or two, execute like hell, are very, very successful and end up being maybe $20 million or $25 million exits. As long as you haven’t overfunded the company, that could be a great outcome for a founder. So, you want to steer those toward either an acquisition, cash flow positive, or a small extension of a seed round so that it can be a good outcome on that trajectory.

Sometimes it just doesn’t work. You know, the entrepreneurs been at it and cranking away and working nights and weekends, but it just hasn’t worked. No one’s using the product, or the product doesn’t work or what have you. And then I think, you want to know that before going out and raising a lot more capital.

Irina: What is your biggest investment success to date?

Mike: It runs a gamut. There was a point in time when we were a co-lead investor in Akamai. That was one of the five most successful IPOs. It had a $30 billion market cap. That certainly was very successful. This year we’ve had a couple of fantastic IPOs. One is company called LogMeIn, which is one of the first tech companies to break the IPO log jam.

We have another one on the life sciences side that’s called Ironwood, which is a $1 billion-plus company now.

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

Mike: The Automattic story is always a fun one. Another one that I like a lot is Quantcast.

The way the Quantcast investment happened was actually, the founder of WordPress, Matt Mullenweg, got to know about Quantcast because they had a partnership to start working together. He told me about Quantcast and introduced me to the founders of Quantcast. So, I got to know them.

They were not fundraising at the time and, candidly, they had very ambitious valuation expectations. But we got to know each other over time, and I got to watch what they were doing, and business was growing. I got to make a whole lot of introductions for them, so they got to know us and appreciate how we could help them.

When, nine or ten months later, it came time for them to do financing, they had a ton of interest. We had the opportunity to get to know them pretty well, so we could make a quick decision, they could make a quick decision and we ended up backing them. We’re very excited about where the company is going.

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

Mike: Build a fantastic product that users are just wildly in love with, can’t get enough of, and would be unhappy if they didn’t have. Focus on the product and figure out what it’s going to take to build a great, great product.

Of course, achieving some level of success before you run out of cash is pretty important, too. All kidding aside, being prudent with your cash in managing your burn, so that you have plenty of runway to build that product and to demonstrate that it is successful. The best laid plans are worthless if you’re out of cash and don’t have enough success to raise more.

Irina: What is your strategy for preserving the cash?

Mike: Well, it’s pretty straightforward. You need to be lean and mean and be able to accomplish a lot with a small number of people.

Irina: What could seed investors and angels do better?

Mike: There is a growing, very public debate about angels versus VCs throughout the blogosphere, and in some instances has gotten pretty colorful.

For the angels who are drawing a lot of attention to themselves by taking very strong positions, that’s all well and good and it’s been a great publicity stunt. But it’s pretty short-sighted because ultimately, the companies that are going to make them money are going to require venture funding.

This segment is part 8 in the series : Seed Capital From Angel Investors: Mike Hirshland, General Partner, Polaris Ventures
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