Dan Rose, a partner in Precision Dialogue, is a serial entrepreneur with a background in marketing technology—including web development and e-commerce—who’s been a part of four successful exits. With this success as a foundation, he’s moved into becoming both a mentor with JumpStart’s program and an angel investor; specifically, he’s done the latter as a member of the North Coast Angel Fund. He shared some insights he’s learned as an angel investor.
What do you personally look for in a company when you are contemplating making an investment in them?
Certainly, the vertical space that I’m familiar with is important—and that’s going to be different for every angel. There’s commonality, though, that you’ll hear from most angels: They invest in what they know. Part of that reason is because they can then lend their own subject matter expertise, their own connections, their own network, their own experience, not just their money. That’s important to me.
Is it the person or the idea? It’s gotta be both—you’re not going to invest in a company unless you believe in both. I think individual angels may weigh those differently. For me, it’s the person first, more than the idea or the concept that they are proving out. The reason for that is because in my own experience—and then in the experiences of the companies I’m invested in—those companies pivot, or they evolve multiple times, or they are variants of what they initially thought they would be. But the people that are behind those ideas—their coachability, their drive, their personal passion…There’s just these intangibles that are more instinctive for me. Entrepreneurship can be lonely—you can’t do it by yourself. You need to be able to rely on others and be open to coaching and to pivoting.
In your time as an angel investor, how has your experience helped you refine your process?
It confirmed, or validated, the approach that I was just referencing. I want to be working with people who are open to being coached and to [aligning] themselves with people that have core expertise. It could be part of the management team they bring in; it could be board members; or it could be advisory panels or other professional services. That’s a key driver for me.
You also learn to be patient. You can give advice and recommendations, but people don’t always follow it. And angel investing, by and large, is highly unusual to have returns or have exit success in a year, two years. These are three-to-five year—sometimes even longer—type of plays.
What advice would you give companies preparing to look for an angel investment? How should they prepare angel investors or making a presentation?
I would suggest they put themselves in the shoes of the angel investor and anticipate one, these investors are going to want to see how is their money being used. If you are being funded—and not just my check, whatever it might be—but in aggregate, how are you using your money? Convince me you know how to scale your company, that you can help me visualize or illustrate that you will get a return on that money invested and make the entity overall more valuable than it was pre-funding or pre-investment. Two, help me understand what the exit scenarios are. Paint that for me. It’s likely that it won’t be exactly what you’re painting, but I want to be convinced that you have a vision for an exit: that you have examples of potential acquirers and reasons why you would be attractive to them. And I want to be convinced that that’s valid. It’s just putting yourself in the shoes of the prospective investor and anticipating their questions.
How important do you feel angels are to the enduring growth and sustainability of Northeast Ohio’s investment scene?
Because of that lull or gap they fill for early stage and startup companies, angels are critical to their growth. Those companies are the engine that’s creating jobs for this region. Everyone knows what’s happened in the Northeast Ohio economy in the last 30, 40 years, with this shift away from the manufacturing sector. The growth, or creating jobs and fueling the region’s economy, comes from small business and upstart, early stage firms. In order for them to succeed, they need that gap funding—they need that angel-type funding.
I also think there’s been some early successes and reason to be bullish on continued angel investment by virtue of some of these companies having some initial exits and strong growth and follow-on funding and VC-type funding. Angels are realizing returns that are healthy and will warrant follow-on angel activity, and it’s attracting more individuals. I actually had a conversation with someone who’s never done angel investing but has massive experience in much larger type of investment, but wants to explore here, simply because it’s another way to diversify their own portfolio.
Are there any other aspects of angel investing you feel is important for people to know?
I’ve heard the term “flocking with angels” or “angels invest in groups.” I really like that, because it spreads the risk around a little bit—not only because you pool your money into a larger fund, and then you spread it across 10, 15-some-odd entities. But equally important: It’s not just the money. You have 99 other individuals in any given fund that you are certain to have some individuals that have core expertise or knowledge about the opportunity or perhaps the people or the industry that’s being vetted. I take great comfort in that. I also just appreciate the learning process, the education I get, anytime I’m around those types of people. I absolutely do not know it all. I feel like I have a significant amount to learn, and I enjoy the process.
Annie Zaleski is part of the marketing/communications team at JumpStart. A graduate of Harvard University, she has over a decade of professional writing and editing experience. She is especially passionate about blogging, social media, content management, branding and rock & roll.