You may have noticed the slight increase in posts related to early stage investments and investing lessons from angels & VCs. This year, I am participating in the Seattle Angel Conference as an investor and have been learning a lot as I spend a few hours each week with 20+ other brilliant investors vetting companies. The experience is forcing me to put my thoughts about investment forward and explain to people how I view the world of investment opportunity vs. what others may see. It is highly stimulating and is most certainly making me a better investor of all types of assets.
I have slowly been collecting my thoughts on the process itself and want to share those as well. The premise of the group is simple – a bunch of accredited investors pool a small amount of funds together and then pick from a group of potential companies to make an investment. I opted to use my self directed IRA to make the investment, others are closer to retirement and are using trusts, others are using money from their savings account. I’ll share my thoughts on self directed IRAs in a future post. For now, let me stick to outlining the Seattle Angel Conference investment process.
The process of refining the list of potential companies is where the learning begins. There are a series of meetings where the investors debate the merits of the companies as well as the personal goals of the investors. Both sides of this coin heavily influence the type of company that gets selected to move forward and make for an interesting discussion. As the meeting progress the pitches get longer and the list of companies gets shorter. By the end… the actual conference… the group of investors have narrowed the companies to the six best companies. If you were not participating in the conference and were interested in seeing pitches from six fairly well vetted companies – this would be a great conference to attend. At the end of the conference, the investors pick their winner and an investment is made.
That conference is five short weeks off at the moment and the early meetings have been an interesting experience. The first meeting I attended a few weeks ago and it made me realize this truly is one of the best formats for new angel investors to dip their toe into the pool. The meeting was easy to get to and the group was incredibly welcoming. We piled into a big conference room at Davis Wright Tremain with lots of beer and pizza to fuel the conversation. The meeting started slowly with the usual audio/video problems for the remote attendees and introductions were no different than any other meeting. What was immediately obvious was that the room was filled with incredibly bright people. About half from Microsoft (current and former) and about half from other tech companies or other industries entirely. There were also about one third of the investors that were repeats from a previous angel conference or are angels involved in other organizations. The other two thirds are new investors and excited to learn through participating in the process.
As we all worked together to narrow the companies from 43 to 30, I quickly realized the team I had joined was incredibly impressive. Some had deep insights into specific industries or technologies and some were great at quickly identifying business model flaws. At the same time, cutting only 13 companies allows each of the investors an opportunity to claim one of the 43 as one that they would like to see if they can passionately make a case to the other investors. This definitely reduces the risk of getting stuck behind the problems of group think early. That said group think may be a problem later, I’ll happily report if that seems to be an issue as the process goes on.
Some of the businesses we cut were too late stage (one was even public), some didn’t have the growth profile we were looking for, and others needed more help than we could give them. The ones that were remaining were fairly varied (tech, medical, agriculture, etc.) and the investors were excited to see the teams come in and pitch. I won’t discuss the specifics of the companies that were selected or cut as that just doesn’t feel right. We did walk out with a great list of companies that would be presenting the following two weeks. We knew we would be in for two weeks of pitches – 3min pitches (+2min Q&A) from 15 companies each week. We didn’t walk out with specific instructions in preparation for the next meeting and retrospectively we should have prepared a little as investors.
In the next post in my Seattle Angel Conference 3 series, I’ll cover the two 3min pitch meetings.