Seed Capital From Angel Investors: Michael Gruber, Founder and Managing Director, Cornerstone Angels (Part 6)

By guest authors Irina Patterson and Candice Arnold

Michael: One of the key things that we try to do beyond the dollars, what is more important than any dollars that the investors could bring, is helping the company and being on the board of advisors or board of directors, or we find additional ways to find resources for them, maybe even to shore up some of their management team.

In that sense, sometimes with my VentureLab group, that’s a lot of times what we do when we’re trying to raise money for companies. Sometimes, we try to take those management roles in which we can get additional credibility for the company, maybe fill a marketing or CFO-type role so they don’t have to find someone and pay someone full time until they execute. After they execute, they can find the right person to take on that task. It’s all about the appropriate staging of the right people.

Irina: What are the critical character traits that a founder should have?

Michael: One, knowledge of the market; two, willingness to learn; three, the ability to be coached,  the willingness and ability to listen and learn from others. Four, passion for the product or service. Five, perseverance, to continue to believe and go at it even when times are tough. People want to back the people who want to do it, and we want them to be in there for the long term. Perseverance and knowledge from the founders are critically important.

Irina: What do you do with companies that you don’t invest in?

Michael: We ask them to continue to keep in touch with us and let us know as they continue [to reach] milestones. For the ones that never made it to the investment meeting, we would consider them for future opportunities, possibly to present. For those who went through the investment meeting process and didn’t receive any money, we do offer those folks an opportunity to come back to the group and give updates of how things have changed, and see if they can get new interest.

We try to continue to keep tabs on them. A lot of times, I wind up just being a sounding board for a lot of these companies as they’re going through it, to think through certain issues, or maybe something happened with other investors and folks. I just try to be a resource to them. We try to continue to help them anywhere we can.

Irina: Do you have any fees for angels or entrepreneurs?

Michael: [For angels], it’s a membership-based organization, so members have an annual fee. For companies, going through our process  is free, as are feedback and interactions. If someone gets selected for an investment meeting, there is a participation fee for becoming a part of the Cornerstone entrepreneurial alum network where we continue to keep tabs with them. That’s a one-time fee. We ask on a discretionary basis for the company, based upon the value that they received from all the support and stuff, if they would make a donation – contribution – at their discretion, either in cash or equity in the company. Our key goal is, obviously, to try to have an incentive aligned with the company. We’d prefer, if anything, to just have equity or warrants in the company as they grow and to be able to continue to help them.

The participation fee, which is just $750, [we ask] that they pay it prior to the investment meeting. The other amount I mentioned, the contribution, does not happen until after they go through the entire process. They see the funding, they see the additional help and value that’s happened, they then, at their discretion, decide when that is.

So, over some period, typically, it’s after they’ve received some value, and they’ve gotten a number of people, they’ve recruited people from the group, they’ve gotten new suppliers, they’ve gotten capital, whatever it happens to be. The company will decide what they think is appropriate at that time. That would typically be shortly either after a no funding decision, but maybe they’ve gotten other value or maybe after they received capital from the group.

This segment is part 6 in the series : Seed Capital From Angel Investors: Michael Gruber, Founder and Managing Director, Cornerstone Angels
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