to compensate future management. Voss remarked that focusing on the important due diligence questions is necessary to manage time. And, change of control provisions embedded in contracts are important to make sure relationships continue in the event of an acquisition to optimize the long term value of the contract. Clearly, entrepreneurs need to keep these thoughts in mind when entering into long term agreements so as to not jeopardize value. Tidwell emphasized the selection of board members who can help guide the entrepreneur and build value for investors.
When considering valuation, the entrepreneur needs to understand that angel investors need to return 30X their money if one deal out of 10 succeeds to get a 25 internal rate of return or about three times capital over five years. The implication is that ventures need to be able to scale which should be important to entrepreneurs too. Patience is required because “big returns take time to develop.” Conversely, “lemons rot faster than plums ripen” according to Luis Villalobos, a well-respected entrepreneur and angel. The typical pattern is as follows: belly up happens in three years; 10 times return takes 6 years; and 30 times takes 8 years. Performing solid due diligence, industry experience, engagement with the venture, and investing at the right valuation can help improve the odds of success.
The Angel Capital Association Northwest Regional Meeting over Thursday and Friday provided similar insights but with a wider range of angel groups. Furthermore, there were additional insights into important national policy developments the association has had a hand in helping shape for the benefit of angel investors and job creation. The ultimate sale of a venture (“exit”) is critical for the entrepreneur and investor to be clear about at the beginning and prepare for well in advance. Fortunately, the ACA’s efforts helped to extend the zero capital gains tax for investments made through the end of 2012. Tom Alberg, partner at Madrona Venture Group, is on President Obama’s National Council on Innovation and Entrepreneurship, and provided an update on efforts to improve policy for driving investment in innovation and job creation. One shift is in the Small Business Administration’s growing understanding of the difference between businesses that scale and those that are simply “main street” types. Investors, entrepreneurs, and policy need to come together to provide the perfect “petri dish” for growing a dynamic innovation economy in the United States which is globally competitive. Spending three days with entrepreneurs and investors demonstrated we certainly have the will.
Author: Byron McCann
Byron McCann is a founding partner of Ascent Partners Group, and the co-chair of the Northwest Energy Angels. He previously was a senior investment banker on merger transactions for the software industry, Chief Operating Officer of a Paul Allen funded company focused on multimedia networking technology, and co-founder of a software venture which was acquired by Computer Associates. He was the Vice-Chairman of the Washington Technology Industry Association. He is Co-chair of the Northwest Energy Angels and is Co-Chair of the Cleantech Open NW Region.
Mr. McCann has an undergraduate degree cum laude from Harvard College and an MBA from the Stanford Graduate School of Business.After Stanford, he joined Ernst & Young’s (then Ernst & Ernst) national telecommunications consulting practice. He consulted on telecommunications projects for large firms such as IBM/Satellite Business Systems (later acquired by MCI) and Xerox, as well as with a number of independent telephone companies and other common carriers.
Subsequently, he was Vice President and General Manager of Pacific Communications, which marketed satellite time for new programs such as MTV, ESPN, and CNN to the advertising industry. TCI eventually acquired the company for its high ad revenue per subscriber. He was brought in as Chairman/CEO of IQ Technologies, a personal computer peripheral firm which developed the Smart Cable, the first universal, serial interface device to connect computers to peripherals and other devices instantly, in order to raise venture capital to fund operations.
He later co-founded and was Chief Operating Officer of genSoft Development Corporation which published dBFast for Windows, the first Xbase-type database development system for the Windows platform. dBFast won Windows Magazine’s Top 100 Windows products award in 1992. genSoft was subsequently acquired by Computer Associates International.
He became Chief Operating Officer of MediaLink Corporation when Paul Allen’s venture firm made its first investment in the Company. MediaLink focused on developing a real-time, high throughput, fully synchronized networking protocol, patented as MediaLink, primarily to enable bandwidth intensive, multimedia local area networking applications. MediaLink also developed VNOS (Visual Network Operating System) which was a cross-platform, graphical interface network management application for controlling hardware and software objects on a network.
Mr. McCann joined the Corum Group, as its Corporate Vice President, and specialized in merger and acquisition advisory work serving the software and related industries. He led engagements that resulted in sales to or investment by GT Interactive Software (a leading digital media publisher), Disney, Xerox, Kewill, QC Data, and SPSS. In addition, he assisted on various transactions resulting in sales to Intel and IMNET.
Mr. McCann is a frequent speaker and co-authored The Investor’s Guide to Fidelity Funds which was published by John Wiley and Sons, New York. He also co-authored Cracking the New E-conomy, published by Washington Software Alliance. He serves as Board Chair of Broadway Bound Children’s Theatre.
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