In May of 1992, I left a startup on less than good terms. After leaving the corporate world, I was aching to get back into startups. I found one and jumped in as their chief operating officer and president.
They had great intellectual property but couldn’t figure out how to monetize it. I had a plan. I pitched it to the founder and then to the board of directors. We raised money around the plan. I hired the right people and off we went. It worked but not well enough to get us where we all needed to be. I left, and the CFO took over as COO.
I met Sig Mosley through that company. He was an investor and was on the board. He was the second biggest outside shareholder. I had a lot of respect for Sig and what he and John Imlay were aiming to do.
They wanted to invest in what John Imlay called “Tigers.” Entrepreneurs who would start and build great businesses around world-changing ideas. They envisioned a growing tech community in Atlanta. John and Sig were all about our Atlanta community.
Although my time as COO ended badly, it gave me some great experience in the startup world. It was a whole new experience that involved raising money and working with outside shareholders, boards of directors, and founders with big visions. My original experience as an entrepreneur was about bootstrapping a company using 90-day notes from a bank. I wanted in on this new startup model, but how could I get started?
I talked to Sig over a period of a few months to better understand his model. He was kind enough to spend time with me and tell me everything he was learning in this new business of angel investing.
His goal was to invest a meaningful amount of money ($250-1,000k) into a startup over a period of a couple of years, then hand it off to a group of VCs. He would help the startup prove out the concept, and they would build it into a really big business. He wasn’t sure his investment thesis was right until one day he hit on a billion dollar deal. The rest was history.
I liked the idea of venture capital. Men and women who were money managers of a very high-risk portfolio of early-stage companies got to play in the startup world. They would meet with entrepreneurs every day and hear about great ideas all the time. The formula of other people’s money combined with helping entrepreneurs succeed sounded like a great new career. And I would have amazing value-add as an operator versus a finance guy.
I investigated this new career by registering and attending a VC conference in San Francisco. It was October 1992, a bad time in Venture Capital. The investments made in Venture Capital by the institutional fund managers in the early to mid-1980’s performed poorly.
I still remember the manager for AT&T’s retirement fund saying to all the VCs in the room, “It used to be we had all the money, and you had all the experience. Now you have all our money, and we have all the experience.”
This captured the tone of the meeting. It was a “take the gloves off” environment. I decided managing other people’s money wasn’t for me. More importantly, the VC industry at the time did not value operators as partners. It was a finance industry led by financial types. (This changed in the mid 90’s.)
An Independent Angel
While networking, I heard about a guy who used to run software companies and was now investing. His surname was Mcgraw. I can’t remember his first name. I worked to get an introduction to him and still remember the office we met in on the northeast side of Atlanta in the Technology Park area.
He told me he invested his money and his time in businesses he knew and understood and could add value to. He told me he would put money in the deal, set up an office for himself at the company, and do whatever he could to help the entrepreneur be successful.
He had a great reputation and made good money doing this. He also made a big difference in the lives of the entrepreneurs he worked with.
I Chose McGraw
Of the three models, this was the one for me. And the McGraw model worked. There was a rough start as I learned how to be an investor and not an operator. But in a couple of years, I saw it working.
When I left corporate, I was running a $60mm US-based professional services business. This led me to focus on experienced professional services managers whose desire was to start and operate their very own business. I implemented an investment model which was a spin on McGraw’s model.
Typical Is Not for Me
I had two goals. I wanted to build cash flow, and I wanted to build wealth. I designed an investment thesis which would accomplish these goals. It worked. But as I increased my cash flow and started becoming a little full of myself, I strayed from my investment thesis and invested in typical angel deals. These were interesting opportunities, new company financings, which were presented to me.
The typical angel investment thesis is this:
- Invest a small amount in multiple deals (10+ presumably).
- Remain passive.
- Receive venture capital-like returns of 20%+ IRR.
The result? I lost every dollar I invested. Not once did I get a return.
For 20 years I implemented an investment thesis which worked and worked well. I need to get back to it and commit the time. If I don’t want to commit the time to implement my original angel investment strategy, here are my alternatives.
- Stop making angel investments.
- Find an angel investment model which works with minimal involvement, and commit my time and effort to it.
Going along with the crowd is not a winning strategy!