Seed Capital From Angel Investors: Brian Garrett, Co-Founder And Managing Director, Crosscut Ventures (Part 3)

By guest authors Irina Patterson and Candice Arnold

Brian: If we could, we’d try to connect the dots and put people in touch with the right partnerships and resources to help them with their businesses. There’s just a finite amount of time. We’ve got a lot on our plate. It’s tough to do.

But there’s a lot happening down here, and I don’t think the rest of the world understands just how much opportunity is being generated down in the Southern California market.

And I don’t think it’s just Southern California. I think it’s everywhere. Innovation doesn’t stop based upon macro climate circumstances. I think [with] entrepreneurs, it’s in their blood. They’re passionate about their ideas.

I just think that Crosscut, in particular, happens to be serving the Southern California landscape and there just happen to be five or six active funds total across the entire region, whereas in Silicon Valley, there are 100 to 200 active funds, all looking at opportunities.

So, I don’t think the level of deals being generated is equal to that in Silicon Valley. I wouldn’t be foolish enough to say that, but on a relative basis, we have a lot more entrepreneurs seeking out capital down here, per fund, than up in Silicon Valley.

Irina: Out of the 500 pitches you get per month, how many deserve a closer look?

Brian: I’d say we probably meet – if we’re just going to stick with that 500 number – with 10% to hear more and hear their vision, and get a sense of what the entrepreneurs are all about.

In terms of deals that make it to the finish line, well, we’ve done 12 deals over the past two years, so six a year. And we’re seeing 500 deals a month, so do the rough math. It’s far less than 1%.

Irina: When you say “you meet,” is it in person or over the phone?

Brian: I always prefer, if I have the time, to meet face to face. I drink a lot of coffee. I do a lot of coffee meetings. I’d do it over the phone; I just think when you’re doing really early stage seed investing, 80% of the reason you invest is the person sitting across the table from you.

In a lot of ways, these have to be individuals whom I enjoy sitting and having a beer with or who I want to go to war with, in terms of I believe in their passion and their vision, and I want to be there right alongside of them to help them execute against that vision. So, it’s 80% the entrepreneur, her mindset, her passion and 20% the idea when you’re doing really early stage stuff.

When you get to the series A or series B, there’re metrics, there’re things you can touch. You get a better sense of, “Is there a business there already?” What we’re doing is really about the quality of the individual, his background, his expertise, his knowledge. That’s best done face to face.

Irina: When you see a promising pitch, what’s your next step?

Brian: In general, I like to test drive things. It’s rare that I don’t see an opportunity where I know a potential customer or partner or someone with domain expertise who understands the space better than I do.

That’s the beauty of having the Crosscut network of people at our disposal. If I see a lead generation play, I know a bunch of people who have built successful businesses based on lead generation. I can test drive this concept with them.

If there’s something that’s agency-centric, I have relationships at advertising agencies that manage relationships with brands where I can run it past them. I usually try to get a sense for trying to validate the pain that the entrepreneur claims to exist that they’re trying to solve with their solution.

Usually, the best way is to test drive it, get some real-world feedback through my own relationships before we engage in calling on the entrepreneurs’ own references, because those are sacred, and you don’t want to use them unless you’re serious about pursuing an investment.

Irina: Besides these one-on-one meetings, do you have any others?

Brian: Sure. We attend a lot of the tech conferences where there are a whole bunch of companies presenting at one time. We attend Jason Calacanis’s Open Angel Forum. We are members of AngelList and have been impressed by the quality of the deals coming across that platform.

But the bulk of our deal flow comes through our trusted network of local entrepreneurs here in Los Angeles who are seeing cool new businesses every day and suggesting that the entrepreneurs get in front of Crosscut.

This segment is part 3 in the series : Seed Capital From Angel Investors: Brian Garrett, Co-Founder And Managing Director, Crosscut Ventures
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