differently. In England, success is you go work for a company like British Petroleum. It’s like the 20th century [notion] of being an IBM lifer. In Israel, they would bemoan the fact that they don’t have really big companies. Startups would sell out early, or not have the management talent to grow big. The U.S. has a depth of people who want to do startups, who think that’s the zenith—not working for some big company. Culturally, it’s different. Purely from a startup and business perspective, the U.S. is in a different league.
I targeted Seattle because it has a more vibrant environment than Portland, from a business standpoint. Portland is a different market because of the companies that seed startups there. With companies like Intel and Tektronix, there is good semiconductor expertise, but not a deep base in software and wireless.
X: But some entrepreneurs say Seattle is too conservative, that startups and investors don’t take enough risks, and that people view success as doing something big at Microsoft. What do you think?
GH: If you talk to any of the venture guys in town, they’ll say that if an investment doesn’t work out, a lot has to do with whether they view it as a good experience. What was the decision-making process? How was their relationship with the management team? Maybe you understood all the risks, you had them on a whiteboard, along with “here’s what we can do to overcome them.” Having that open discussion with your investors is important. The key is what the experience was between the team and its investor base.
It’s true, the “team grade” goes up if someone is a former Microsoft executive. Which is a bit of folly, because you want a team that has created equity value before, or they’ve led a [profit and loss division]. And you don’t have dozens and dozens of people at Microsoft who have that experience. Another issue with Microsoft is its products are distributed through a monopoly channel, so it’s not truly an entrepreneurial model.
X: How has the recession affected the Alliance of Angels’ overall strategy, and that of the early-stage companies you look at?
GH: When I was coming back from London, everything was crumbling. But over the last two months, we’ve seen a lot of deals getting done, especially from some of our most active angels. I’m surprised at how active people are now in terms of making investments. I’m also surprised at the terms of the deals, [compared with] before I left. It’s becoming more VC-like, in terms of things like preferred shares. Also, companies are further along now [when they seek funding].
The overall market is going to affect our group. If the VC market is not there, that makes it more difficult as an angel to look at early-stage deals. But those investments are still possible. If you’re not able to raise the $5 million in venture, then what can you do with this $1 million? Can you pivot, can you become cash-flow positive, can you become attractive for larger companies [to acquire]? We see 20 new deals every month. There is always something there that you hadn’t thought of.
