What a great week we just had for Northwest regional angel investors. Checkbooks were left untouched but minds were impacted by many insights shared among both highly experienced and new investors. Importantly, the insights shared by angels are just as valuable for entrepreneurs since a highly functional partnership between the two is critical for success. The approach to deal negotiation was that of helping the entrepreneur with his or her wealth accumulation goals.
Why is this important from a policy perspective? According to the Kauffman Foundation study in December of 2009, companies less than five years old created 40 million jobs over the past 30 years while large companies netted zero new jobs.
Investing and entrepreneurship are clearly two sides of the same coin. Investors won’t make sufficient returns to compensate their risk-taking, and entrepreneurs won’t meet their personal goals if a venture is not successful. Angels and entrepreneurs, along with some luck and timing, are both necessary for success. This week drove that notion home over two events covering three days.
Starting last Wednesday at the Northwest Energy Angels event, members from six regional angel groups enrolled to hear Bill Payne, the ultra-experienced angel investor and mentor. He led the Angel Capital Association’s Power of Angel Investing Workshop which focused on the importance of the due diligence process and determining reasonable valuations for investment. Angels need to know how to conduct thorough due diligence that is prioritized on the critical factors yet not overwhelming to entrepreneurs. Research shows that the amount of due diligence effort conducted by angels is highly correlated with returns; the more due diligence is conducted, the better the success rate. However, the key is to focus on the relevant issues that really matter for a particular venture and not get stuck in the weeds of too much detail.
The workshop started with a panel of experienced investors and attorneys including Dan Rosen, Chair of the Alliance of Angels, Geoff Entress, Partner at Voyager Capital, CJ Voss, attorney at Stoel Rives, and Kiki Tidwell, board member of NW Energy Angels. Rosen emphasized the importance of critical analysis of the alternatives a venture’s customers have as substitutes for the venture’s product or service. Entress pointed out that customer calls are critical to validate why they purchase. Understanding customers’ decision-making criteria is just as essential for entrepreneurs as it is for investors. The issue of founders’ share vesting is important for both investors and the other founders to manage precious equity if one of the founders decides to leave shortly after the funding. Retiring some of that founder’s shares is necessary
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.
View all posts by Byron McCann