Seed Capital From Angel Investors: Saad Khan, Partner, CMEA Capital (Part 6)

By guest authors Irina Patterson and Candice Arnold

Saad: I think the interesting thing about the world today is that if you put a small amount of money to work, companies with even small amount of returns – you know, with the $20 million to $50 million to $70 million exits – can still be great investments from a cash perspective. They can also be very attractive from a time horizon perspective.

We certainly are open to all of those kinds of opportunities. Some of the more “modest” successes are great for us from a cash perspective.

At the same time, some companies find themselves on a different trajectory where they have the opportunity to get very big, very fast as well. We certainly are excited about those, with the caveat being that it’s got to be somewhere in the three- to seven-year investment frame, just given the limitations on the actual fund life cycle that I just described.

Irina: You just mentioned small, niche-sized markets, so what’s your lowest number for that?

Saad: What I’m saying is, if a company raises only $500,000, and even exits for $10 million, chances are that that can be a good return for the entrepreneur and for an investor, from a cash perspective. A $20 million exit is even better than that, and $50 million is even better than that.

I think the point was to be in line with the entrepreneur and to be on the same page, and I think the way you do that, on both sides, is by being cautious in terms of what you think you ought to raise, based on the opportunities that you’re going after.

In some cases, when people feel like the business is really working, and they see the opportunity to build significantly bigger and they want to capitalize and put more money to work, obviously, that’s something we’re happy to do as well.

I guess my point is that even in the traditionally small to medium exits, it can be a life-changing event for an entrepreneur. I think it can be a great exit for us, if the company hasn’t raised a whole lot of money.

That’s the beauty of a lot of the Internet economics companies today. They don’t need a lot of cash to get to what I think are great outcomes. If it’s a good outcome for the entrepreneur, it should be a good outcome for us.

Irina: As far as the stage of business development, you said you can invest before anything is actually built, right?

Saad: Absolutely. In some cases, we’re investing before we even know what we want to build. I have companies that I’ve invested in that have no name.

The company is basically a group of people who meet on a weekly basis to figure out what would be an interesting problem to tackle.

And then we brainstorm about where we see those opportunities as being and who the people we would want to bring into that kind of an opportunity might be to help us execute on that kind of a strategy.

Some of these companies have no e-mail addresses; they have no bank accounts; they have no formal name; they haven’t been incorporated; they don’t even have their final founding team, yet.

Again, when I start with the premise that the most important thing is people, the second I find those people, I don’t care what stage they’re at.

Then it becomes about, if this is somebody who’s still thinking about what he wants to do next and isn’t even sure he wants to be an entrepreneur, we’re happy to sit down in discussion with him then.

I look at this as, sort of, pre-idea investing; and I look at this as investing in people. I’ve been pretty vocal about this way of operating for awhile. I wrote an op-ed in Forbes called Entrepreneurs as the New Asset Class where I even argued that, eventually, what the lead structure would be is maybe to even not to be investing in companies but to be investing for equity entrepreneurs themselves.

So, yes, I think certainly before business development; certainly before customers, certainly before product; in many cases, before we even know what we want to do next.

[But that] isn’t to say that if companies have all those other things that we won’t look at them. Of course, we will. It just means that one of the hardest things to find is an exceptional team.

This segment is part 6 in the series : Seed Capital From Angel Investors: Saad Khan, Partner, CMEA Capital
1 2 3 4 5 6 7 8 9 10 11 12