Futurosity

Fred Hoar of Miller/Shandwick

I met you at VentureFest, and I thought it was really interesting the way you introduced yourself. You said, “I always wanted to be somebody, and now I realize I should have been more specific.” So, how did you get into this whole high tech business and what made you decide to become an angel investor?

Well, my high tech career began right after I left college teaching. I was a college teacher in English and journalism, and I came to the West Coast on a year’s leave of absence after two years as a teacher at a graduate school. And… took a job as a technical writer with a technology company, and that really began my technology career. That company happened to be Beckman Instruments, and one of the persons that I was working with there went to a company, which was a computer startup… And this is way back in the fifties, late fifties. And I joined them and they were acquired by Burroughs Corporation, and so my whole subsequent career was with large high tech companies; Burroughs, and then I was with Univac, and then I was with RCA. And I was brought out here in ‘69 by Fairchild, which was the first Silicon company in the Valley.

And in all those jobs I was responsible for “communications,” which is public relations, marketing services, advertising, as well as—as the companies prepared to go public, or were public—investor relations. So, in my… at Fairchild, for the whole decade of the Seventies, I spent a great deal of my time on the investor relations side. And in 1979, we were acquired by Shlumberger, and—as I tell people, we became Shlumchild—so I was hired by a funky little company called Apple. And one of the guys at Apple, Mark Markula, had been at Fairchild years before and knew me from that.

So, I was hired by Apple to be the VP of Communications there… main focus being on advertising and PR, but also investor relations because the company was thinking of going public. Now, I went there in early 1980, and we didn’t go public until the following December. But I was on a road show with Steve Jobs, and so forth, when we went public—and also when we did a secondary offering the following May—in addition to handling all of the advertising, PR, marketing services and so forth. One of the guys that I dealt with—both at Fairchild and at Apple—on the investment side, was Hans Severiens.

Hans called me one day and said he was thinking of starting an investment group. And I’d always dealt with the Street, and people on the street—Ben Rosen, for example, when he was an analyst, and a whole gaggle—and so I knew a lot of the players. In addition, I’d now been with companies, large and small, which had a lot to do with Wall Street and financing, so I said I’d be interested. So, he and I and two others—Jack Carsten and Bob Lorenzini—had lunch and together formed the Band of Angels.

Why become an angel investor?

Because it’s a means of, hopefully, hitting a home run, or getting on base anyway, with startups in the technology space. Where if you have a group, such as we do, of seasoned and experienced and sagacious individuals, you can identify opportunity much more quickly than you do on your own. So the deals that we get to look at as angels have already gone through a filter, are sponsored by an angel by definition that we don’t look at any that are not, and in general are quite high quality. And so, the reason to do the investing is one, for the potential of return, and the second thing is the potential of being, you know, part of an enabling energy to continue the innovative tradition of Silicon Valley.

There’s a little bit, particularly for some of the folks who are so wealthy they don’t have to count anything, you know, they just are there for, are into investing as kind of a hobby. But they also have wonderful contacts and they also have resources. In my case, I’m not at the point where I don’t care about the return. I am at the point where I’m not uncomfortable, so therefore I have wherewithal and the resources. But I’m also very interested in finding the next big thing, and maybe being a part of it financially. Maybe… this is a public relations agency which I head—we only do high tech companies—so maybe representing them and helping to bring them… to give them visibility, and then take them public, as we often do. But all of those are motives for being in an organization like the Band of Angels, which is of course an alternative to venture capital. It’s another channel, and that channel—as I said in my talk [at VentureFest]—is both much smaller in the amount of money that’s raised (about one-fifth), it’s more patient, it tends to be more mentoring and more caring, and also it tends to be done with less research than the VCs might do. It’s a totally different model and a different avenue, but at the same time, because we’ve got such high quality people as members, we do have good calibration on companies coming to us. Because we’re a sponsor—everyone is sponsored—we do have some pre-filtration and some judgment applied early on.

And thirdly, the people who are in the Band of Angels are able to ask all the right questions from the presenter who’s presenting, and can cut through quickly to the core value proposition. And then we decide on that basis whether to invest. So, it’s less than just doing it on one’s own, where you’re talking to your uncle or your brother or your cousin who’s got a great idea and he wants you to invest. When you do it within this context and you have ability to get out of a reality distortion field, you have an ability to see deals that you might not otherwise, and then you make a decision. It’s all done individually, and we don’t make an investment as a group. We all do it one by one. And then take it from there.

You said angels don’t do as much research. Is it faster money, or easier money to raise?

It’s easier money to raise, and it’s also more patient money, as I said. But when I say don’t do as much research, I simply mean that a venture capital firm will really do some extensive due diligence, and that’s not to say angels don’t do due diligence, because they do—some more than others. But, you know, these are deals that come to us from out of the blue. Let’s just take one, which was actually low tech. It’s Pollo Rey, which is a fast food chicken restaurant chain, and the guy who came to us—Rey, by name—was very persuasive, and told us about a model that no one knew anything about. I mean, none of us have had any experience with fast food chains, not… unlike the companies before us in semiconductors, software, the internet, even healthcare, medical devices, somebody always has some experience. Nobody had any experience there. But, we were intrigued by it. And, even though I didn’t invest, a lot of people did. We happened to have Ben Rosen there that night. He invested significantly in it, and in fact his son actually went to work there. But bottom line on all this is that the kind of due diligence we do, it seems to me, is a little shallower than the traditional venture firm does.

We are—you used the word “venture catalyst” a little while ago—we are certainly a catalytic force as well as an enabler and a funding force. We’re also a mentoring force, because frequently we get involved with the companies. And we’re also, in the case of the Band of Angels, a social club. It’s an experiential thing. It isn’t hard-nosed, VC-oriented, cold-eyed, sharp-penciled, you know, let me take the biggest bite I can out of this. That kind of thing. It’s a quite different proposition, model, and climate.

So, is it an old boys network?

Largely. Yeah.

Are there women in the organization?

Yeah, but there are very few. There are very few. And that’s one of my personal crusades, is to reduce the testosterone level and raise the estrogen level. And so far, I’ve not been very successful, because it’s hard to find females who have reached this stage of life, where they have resources and want to do this kind of thing. But there are some. So, 120 angels—members of the group, or the Band—I would say that no more than ten are women.

So, how does the Band of Angels compare to some of the other angel organizations, like The Angels Forum or BayAngels?

Well, BayAngels has just started, and I was a speaker there. In our case, the deal… we have… I’ll have to be very honest with you. I don’t know how all the others are doing it. I know a little bit about BayAngels.com because I was a speaker there, at their first dinner, and they had a lot of people there, and so forth.

In the case of the Band of Angels, there are several characteristics. One is selectivity. It really is a club for which membership is by invitation only. And so therefore, you have to be invited to join, and there are people waiting, wanting to get in, and in some cases they’re not getting in for various reasons. We want people who are of substance, people who have the wherewithal to make significant investments, people who are experienced and therefore can give us insight into the deals, people who are congenial (because it is a social environment). And finally, people who are going to come and attend the meetings and so forth and not just put their name on a list. In other words, we want players, not watchers. So, given that, we’ve been quite discriminating in the people that we’ve invited to join. I think I mentioned at that speech that time [at VentureFest]—many speeches—that we started out with twelve. Like the Apostles, I usually say. And, you know we met in an upper room, which is at Chantilly [restaurant in Palo Alto]. Now, of course, we’re at Los Altos Country Club.

But, there’ve been people who wanted to join, and we’ve done a fair job of getting ourselves known through publicity. Part of that is me because I’m in the business. Guy Kawasaki asked me that, and he said, “How come you’ve done it,” and I said, “You’ve got to remember, I’m in the business.” But it really hasn’t been a conscious effort. We’ve not actually set out to do it. It’s just that I’m, by nature, dealing with the press all time.

So, we’ve had a wonderful degree of momentum built up, and interest generated, and yet we’ve kept this fairly spontaneous, fairly unstructured, fairly undemanding on our people. We hired a Ph.D., Ian Sovieski to help review the deals. We’ve also had the full-time attention of Hans Severiens, who does the newsletter and really is there. He’s the major… he’s the archangel. And, finally, we’ve had some deals that have come through and people get interested, etc., so there’s been no dearth of applicants, there’s been no dearth of interest, and there’s been no dearth of continuing excitment, and I like the model as it is. Now, there are some who would like to change it. There are those who feel that we are—now that we’re in our fifth year—that we’ve gone beyond the old boys network, or the Marching Chowder Society, the social club, and that we should get organized. And “get organized” means do things like provide training for those who are going to present to the Band of Angels, so that when they come to us, they get their proposition down clearly and are able to go a good job. Because it varies all over the lot in terms of how well they present themselves. Get organized in terms of setting up a fund. That actually is being done by Hans Severiens. I’m not part of it, but he is actually doing it. Get organized meaning that we become very stringent in how we accept new deals. We charge them now 15 percent or ten percent of the deal, or the money that’s raised—we didn’t use to do that. We’re doing different things that are more characteristic of a bureaucratic organization than I’m personally that comfortable with. I like the spontaneity, the looseness of it, and so forth. And that so far has worked wonderfully. But there are people who feel that we now should take another step and become more a formal and a more structured organization, and we’ll see how that goes.

You say you take fifteen percent. You mean you take a percentage that’s raised… the club takes a percentage of the money that’s raised for the entrepreneurs?

Right. And that didn’t use to be the case. That was just done within the last six months. But it makes sense. And, you know, we’ve got to do something to help defray the costs of it, so that is being done. And, but we’ve raised the rates—I mean the rates, it’s not any money of any consequence—but originally, you know, we asked them to pay $500 a year.

For the members?

Yeah.

You have a number of members who are also venture capitalists, right? Why would someone who is already a venture capitalist, running a venture capital fund, maybe doing seed stage financing, want to also be an angel.
Well, it’s an interesting question. Quite candidly, the venture capitalists that we’ve had are not coming to the meetings lately, I’ve noticed. And so, one can make a case that perhaps some of them originally came and were playing defense, and wanted to see, you know, if this was a rival here.

Doing a little competitive research
A competitor. And others just like the vibe. At the same time, you can make a case that those VCs who do come, come partly for the joy. I mean, it’s kind of a fun deal. I mean, knowing that we have hopefully good deals to look at—and that would be playing defense because they want to see what they’re not getting. But secondly is that, you know, we have speakers. I give a little speech each time about what’s happening in the Valley. We’ve had Bill Bradley and we’ve had Elizabeth Dole, Ben Rosen, and… people of some consequence. And then it’s just a fun environment, I mean, fun seeing all these folks and pressing the flesh, so that people show up and seem to like it.

Are they pretty active in making investments, too?

The VCs? You know what? I honestly don’t know. I just never tracked it.

I wondered if maybe it was that they wanted to make a smaller investment on something that might be too risky for their fund, but they still wanted to play?

I’m sure that that’s part of it, too. It’s an interesting question. I mean, frankly, we have been more open to VCs than other angel groups. And when we had our first two or three cocktail parties in January, which we do, we invited like forty VCs to come. Sort of like observers. I remember Pope John Paul XXIII—Pope John XXIII–when he was convening Vatican II, the Vatican Council, and there were a lot of Protestant clergy as observers, and he made comments saying, you know, “To all of our people, the Blessed People, and to our beloved of the observers.” And so, I thought of the VCs joining us as our beloved of the observers. I’m not sure that they would go along with the beloved part, but they have come for varying reasons of their own, one of which might well be that they want to get in on some action that wouldn’t be candidates for their own firm.

That kind of reminds me, also at VentureFest, there was a little discussion about—a little banter between vulture capitalists versus angels—and someone made the comment, “Well, Lucifer was also an angel.”

I said that. I think I did. Maybe it wasn’t in that context, but I’ve said it before. Yeah, he was the fallen angel. I mean… maybe I didn’t say Lucifer; I said that there are fallen angels.

So, what are the relationships like in general, not just with the Band of Angels, between angel investors and VCs?

I’d say there’s a little tension between the two. Less so on the West Coast than in places like Boston, my hometown. In Boston, they’re in open competition for a deal. Part of that is because there’s a ton of money around, as there is here, but there are far fewer deals. So, with more money chasing fewer deals, you tend to have rivalries. And here, on the other hand, we’ve got lots of money, but we have lots of deals. Probably five times as many deals as they would see in Boston. That being the case, there’s not the necessity for a pitched battle over who’s going to get to fund which deal. Because in our case, as I think I mentioned the other day, there is always follow on VC investing, which is something to the tune of five to one. They will end up investing five times—the VCs—what we invest as angels. So that the angels… I’ve often said that the angels fly ahead of the VCs, but they also fly much lower. And then they land quicker. And that is a relationship that then is symbiotic, and thus far has been pretty productive. There’s not been any notable acrimony or hostility or rancor between the two groups. Albeit, I have to say—because I haven’t thought about it until I did this interview—that I’ve seen fewer VCs in our ranks this year and last year than I had in the early years. Because in the early years we had quite a number, almost all of whom are not there anymore. They may have decided that they didn’t need to waste their time with this, and they had other things to do.

I wonder, too, if maybe it’s changing because companies are going public much faster, sometimes there are fewer rounds, and maybe more VCs are getting involved earlier?

Could be. It probably is. Now, you know, and also… you know, I mean, I’m a VC too. I mean, I’m a limited partner of El Dorado Ventures, but that’s recent. Owen Brown [?] is a limited partner of El Dorado Ventures; he’s an angel. So, I want to make sure that I’m being accurate here. It could well be that more members are involved with venture funding than I know about. They’re not thought of as venture capitalists—like nobody is thinking of me as a venture capitalist, and yet I am, I mean I’m limited partner of a VC firm. It’s not what I do, and not that I’m spending much time on it, but I am. But I’m not a general partner.

Hans Severiens refers to us as members of the unwashed, and he said… because we do, you know, such anemic investing compared to the VCs. Our deals are usually not much more than a million dollars per deal. It used to be like a quarter of a million dollars per deal, and it’s just progressively gotten higher. And as he said when we funded Sendmail to the tune of four million—and then there was an additional two million in angel money that came in after that, so it was really a total of six—he said, “I guess we’ve joined the ranks of the washed. But, once again, the amount of investment is lower, usually it’s an earlier round, in general it’s something on which we probably haven’t done that much due diligence, albeit we’re not just throwing darts, and that’s not to be misunderstood. And also, as I said in one speech that I think I did at the BayAngels, I said, “You know, I try to tell people we’re not like Chihuahua investors. The Chihuahua has no idea how big he is, but he barks at everything. So we try not to do Chihuahua investing!

So, coming back to the fallen angel piece a little bit. What is the downside for an entrepreneur to get angel investing? You hear about “vulture” capitalists. What’s the dark underbelly of angel investors?

The dark underbelly would only be that… it could be the angel is not giving you enough money that it’s undercapitalized. It could be that the angel is not really going to be that helpful in pushing the company. Because the VC, usually when they invest they go on the board, and it could be that the people who are investing are not going to add much to your board if they’re an angel. And third, it could be that the angels don’t represent serious money, that there’s an element of dilettantism, because after all, these guys aren’t doing it for a living. And so one could make a case that it’s more frivolous than a serious company might be comfortable with. Now, that’s not always the case by a long shot, but just looking at the worst case, if there is a dark side, it could well be that.

Is there a risk with angel money, for a company that may get into trouble, that maybe the angels wouldn’t have as deep pockets as a VC, who might invest in early stages, but is more likely to belly up to the table if they run into trouble?

Definitely. Absolutely. And, as a matter of fact, it’s quite interesting that we have had companies come back—some of which I’m invested in—come back for additional funding from the Angels. And there’s a sentiment within the angels that that’s not kosher, that we shouldn’t be looking at doing… you know, we’re not VC firms, you know they’re taking the place of other companies we should be funding, or looking at. And they’re really kind of pissed off about it. And in general, these are companies, which have not really been very successful, and have not performed well, and therefore need more money but they aren’t able to raise the valuation, so they come back maybe six months or later for another round at the same valuation. It’s not exactly what we want. And so there’s some resentment on the part of some members of the angels that this has been done, and I think we may try to stamp that out. Whereas, of course, on the VC side, they’ll be monitoring that thing, and they’ll put up money if they see the company really needs it and is worth saving. As opposed to letting it go down the tube. So the risk would be just what you say, that the angels do not provide enough of a safety net for companies that might get in trouble, or enough of a parachute.

What’s part of the value-added that angel investors, or Band of Angels in particular, offers, besides money?

Expertise. Knowledge of the marketplace, and so forth. In general, the sponsor is someone who absolutely has credentials and, you know, experience. As Oscar Wilde said, “Experience is the name we give to all of our failures.” So, they’ve been there, these people. And, you know, what is it? The old joke about… good judgment comes from experience and you get experience from bad judgment. So, their experience. Their relationships, their contacts, and they’re frequently very, very good because they have their own networks.

And finally, in the case of an angel, it’s usually a kind of a desire to, you know, hit one more… hurrah. One last hurrah. And if you’re on the final glide path like, for example, me… as I say, well, you know, you say, “Shit. I don’t want to get out of the game. This is too much fun.” And then you add to that the social sauce of being in an environment where you got a lot of your peers and people and mucking around with other gray heads and so forth—very good guys, of consequence, and nice to be around, and fun—and for that reason it’s worth coming to. People do it, and they press the flesh, and they hear about what the hell’s going on, and you have a window, and it’s a variety of people, it’s a large group, as opposed to a VC firm, and everybody’s got a new insight into something. So it’s quite a synergistic experience. And then, you add to that the fact that maybe, just maybe, one of our deals will really be a homerun. And you’re able to get in early, and these people want to come to you as an angel rather than the VCs, for all the reasons you suggested—the VCs, with their… you know, VC not only stands for “vulture,” it stands for “vampire.” And…

Say more about that. I mean, do VCs just have a bad rap? Or, has that changed?

The stereotype, because VCs have been notably vampirish in the past. And certainly have been less that altruistic, or anything approaching that, in their relationships with startups. And they’re very stern and… because that’s their business. They should be. Now that I’m one of them, as a limited partner, I say, “Right on!” But, the rap may be less deserved today than it used to be. It’s a little bit like, you know, the angel in a play, that’s what… I mean, the financier for a play, or anything like that. They’re pretty hard-nosed, and they have sharp pencils too. And the main thing is that some venture people are, you know, very intolerant of people missing their mark, and so forth. So, they become kind of onerous in the relationship. That is not true with angels.

Do you think angels are more altruistic, or more idealistic, in the kinds of investments they do?

They’re not necessarily altruistic or idealist, but they’re less onerous. They’re less high maintenance. They’re less hard to please, and that’s all to the good. So people are much more comfortable with angels. I mean, you’d rather be with angels than vultures, right? They both fly, but you’d rather be a flock of angels than a flock of vultures. And so, but at the same time, is it a bad rap today? Could be, because certainly, we’ve had a lot of experience with venture capital now and, I think there’s a lot of collective knowledge and lore, which is used to advantage by VCs and helping companies, helping fund them. After all, it’s been the availability of venture money that has fertilized this risk culture that we call Silicon Valley. And without that, we wouldn’t have this. And it didn’t used to… there didn’t use to be anything like this. You got to remember… in fact, I don’t know if I mentioned it the other night, but I have recently—because I just learned it—the first angel in Silicon Valley was the President of Stanford. Did I mention that?

Right

.
Yeah. David Star Jordan.

Hey, when Fairchild in 1957, when eight guys left… and wanted to start up their own companies, they couldn’t find anybody to finance them. There were no angels who were going to finance eight guys. They knew how to hire one guy, but not eight. And it just happened that Gene Kleiner had an uncle in New York, and the uncle said, “Well, I’m going to send this young guy, Arthur Rock, out to meet with you guys.” And he did, liked the proposition, and shopped it to 35 companies. Westinghouse, Sylvania, RCA, you know, you name it. And none of them would take it, till he came on this eccentric inventor of the aerial camera named Sherman Fairchild. And Sherman Fairchild sent Richard Hodgson, his CEO, or COO, out to meet with these guys. And Richard Hodgson says, “Alright. I’ll put up some money.”

So he was an angel?

And he was basically an angel. That’s exactly what he was. He was a corporate angel. Precisely. And, from that came Fairchild. Out of which came Intel, National, Advanced Micro Devices, etc. Out of which came Apple, and so on. So, that concatenation all goes back to the availability of money and the prescience of a person like Arthur Rock, and recognizing the opportunity of Dick Hogson, which is a big part of the secret of angels or VCs. It’s not just having the wherewithal, not just having the deals come to you because you want to have exposure, you want have a look, but it’s knowing what it is.

How does Ben Rosen… when Ben started his venture capital firm, I remember he told me—he’s a long-time friend of mine—and I remember him telling me he was going to do it, L. J. Sevin, they were going to start a venture capital firm. And I said, “That’s nice.” What did I know about it? But, you know, it was Ben that was able to sit down at Marie Calendar’s Pie House. And here’s Rod Canion, and the guys sketch on a napkin the idea for a portable computer. And Ben had not only the cojones, and not only the pockets, but also the recognition factor, that he would spot an opportunity and say, “This is the one.” And he did the same with Lotus, and he did the same with any number of others.

And all that is something you can’t teach… well maybe you can teach it, but you certainly… it doesn’t happen overnight. It’s a gift that many—some—people have and that’s what makes great VCs. I mean, why was it that Arthur Rock recognized in these eight guys, “this planar process you’re talking about to make transistors. And things are going to go with transistors. And these eight guys are very impressive. You got a guy named Gordon Moore in these eight guys; that’s a pretty impressive guy. And there’re a few others. You know what? This looks like a winning combo. And I don’t give a shit that nobody’s backing combos. We’re going to do it.” And of course Fairchild, which was not in the business at all—they were in the business of aerial cameras and things like that, that was their business (Sherman Fairchild was an eccentric bachelor who used to date Gloria Swanson and he invented the first practical, between the shutter lens, which led to aerial camera photography)—and they said, “Okay, we’ll put up the money, and we have a right to exercise our options in all of your stock in two years.” And that was in ‘57 and in 1959, they did that. And that became Fairchild Semiconductor.

So, how do you decide what to invest in?

In my case it’s far less scientific than it probably should be. And I don’t do enough due diligence, no question about it. I go largely on intuition and reference. And I listen to some guys who know what they’re talking about, and I’ve been known to listen to others who don’t know what they’re talking about. But, I’m certainly, I think able to smell a good deal and feel that it’s got a good shot.

What does a good deal smell like?

A good deal smells like… it smells like money, but not old money—new money. It smells like sweat, meaning that the kids are going to work their butts off because they’ve got fire in the belly. It smells like, you know, baking bread, which as somebody said, marketing has to be like, it has to have the smell of baking bread. It feels warm and it feels like something the customer’s going to want. And it feels also, it smells like value, that you’re going to get something delivered to you that’s going to be useful. It also smells new, and different, and maybe totally unique. So it’s a new smell. It’s a smell I can’t recognize, I can’t put my finger on, because it does have a differentiated proposition, value proposition.

All of those things together means that I’ll take a look at a deal and think that Sendmail sounds like a good opportunity. Because email is going to go—you know, it’s the corporate nervous system, as Bill Gates says—and these guys have a good way of doing it. And besides, it’s got Andy Beckleshine, and Ben Rosen, and so on. So I bring those two together and say, “Okay, if I can get in on this one, I’ll do this one.” Then there’s some others that I simply roll the dice and think that it’s good, and I’ve made some big mistakes. I mean, you know, big mistakes in those companies that are not going anywhere. I’m just taking a write-off on a couple of them this tax period. And there I was sold a bill of goods. It was a little early on, but the guy that came in—I won’t tell you his name—but he was a real great salesman and so on and so forth, and I thought, “Gee, this sounds pretty good.” And I was just getting my feet wet. Now I’m becoming significantly more critical and, hopefully, more insightful, but even now I’ll make mistakes. There’s no question about it. And, I just don’t want to be out of the hunt. As luck would have it, I have the wherewithal to be in the hunt, but I don’t have the wherewithal to throw it away like some guys. I mean, you know, if Paul Allen can… he can invest a few billion and he’ll never miss it. Well, that isn’t true with me. And at the same time, I am a risk-taker. I’m acculturated to that as having been out here, and so I am willing to take a flyer and roll the dice. I just don’t want to take too many… a wild flyer. And I’m not going to be a sucker for everybody and his uncle. And I get called all the time, because my name has been associated with the Band more than it should be, because I’m not the guy that’s really the guy. The guy is Hans Severiens and a few others. I mean, this is an avocation for me.

It might almost be easier to answer that question in retrospect. How many investments have you made over the years, would you say?

With the Angels? Oh, ten, maybe twelve. Twelve. Probably twelve. And of those, two have gone south. The others are alive. A couple have cashed out, and they’ve done okay… You know, I have to tell you, it could be more than that. I don’t want to just… not that it matters, especially for this. I mean it could be, but I’m thinking it could actually be fifteen or sixteen, because now I’m just mentally adding them up in my head. But let’s say it’s somewhere between ten and fifteen.

It sounds like you got a couple losers and a couple big winners, so… which is pretty consistent with what most venture capital firms probably do.

Right. Yeah. And then I’ve got a lot that are in—I won’t say in limbo, or in purgatory—but they haven’t happened yet.

How involved do you get in one of your investments? I mean, after. You mentioned earlier that angels offer mentoring and so forth.

Yeah. I’ve been involved with a couple of them. But quite frankly, not quite as much as some others have. So, I wouldn’t be a good example of a particularly committed mentor. There are some who spend quite a bit of time, you know. And that part is good, and I think we want more of that rather than less of that. But, because of my status in life working here, I just haven’t had time to do much.

So, what I started to ask you before was… this track record of yours. It might be easier in retrospect to look back and say, what do you think were some of the differences between the companies that succeeded and didn’t do so well?

Well, first of all, anything with .com seems to be, you know, hitting on all eight cylinders. I think that in some cases the management was not particularly good. And in some cases we… the market wasn’t particularly good and the plan wasn’t thought through. I’m beginning to be able to see through the slick presentation from the non-slick. In some cases the company simply had not truly thought through and evolved its plan sufficiently to be able to use it to practice. In addition to that, they didn’t really have the management team to make it happen. You know, we try to—I think I touched on the other day—we look at several aspects. One is, we definitely look at management. Two, we definitely look at the technology. Three, we definitely look at the market. Four, we definitely look at barriers to entry, IP [intellectual property]. And so on. There are some other criteria as well, but those are four right there. And not everyone of those was met by all of those that I went into. But the biggest, biggest weakness is in the management, the executional ability. As has been said by others, John Doerr, he said, “You know, there are four kinds of risk. There’s market risk, financial risk, technical risk, and personnel risk, or management risk.” And generally, they’re very comfortable with the financial risk and usually you can be pretty comfortable with the technical risk, because we’ve identified what that is. The market risk and the management risk are the two big things.

We haven’t as angels had an opportunity to look at some of the big home runs that have happened. I have in here [at Miller/Shandwick], I’ve had an opportunity to invest, and didn’t, because I’ve had them as clients, and I didn’t invest in the Globe.com, and I was offered an opportunity, and a few other things. We actually launched them. But anyway, the fact of the matter is that the homeruns that are the Netscapes, and the Yahoos, and the Excites, and Lycos, and so forth—we haven’t really had any of those.

Why do you think that is?

That’s a good question. That’s a very good question. I think those companies have not, maybe, come to angels. They’ve gone through a traditional VC, or early private placement, or what have you. But it is a very good question to ask, because we can’t point to any one of those breakthrough companies. And, it may be revealing about the whole angel process. It may be that the deal flow, which we congratulate ourselves on being so rich and robust, is all of that but that it’s not the highest alloy and that for varied reasons the high alloy folks look elsewhere.

If I’m an entrepreneur and I want to come to the Band of Angels, where do I need to be with my business, and how would I go about doing that?

You need to have a business plan. You certainly need to have a management team. You need to have a financial plan. And you certainly have to have a product that’s out of beta—out of alpha, and then maybe it can be in beta.

So, it’s not real early seed stage money. I should have…

It’s not. It’s not, we’re not looking at companies—and you’ve got to be local, too—we’re not looking at companies as a rule, albeit we have on occasion, companies that are, you know, just a gleam in somebody’s eye. I mean, we’re beyond that. And, we’re definitely looking at who the management is. We’re also looking at who the sponsorship is, you know, who’s championing it within the Angels. So, I guess you have to say, it’s beyond the stage where you go to your relatives and your parents and so forth to get some funding to get this thing… it’s not in the garage.

What do you think of garage.com, speaking of garages? It’s a different model.

I’ve not been persuaded that that’s a good model.

Why do you say that?

I don’t see how you get enough real insight into the company, and so forth, using that model and going on the web. Now they may be tremendously successful, and I know that they’ve got very good people. I know Guy very well—Guy Kawasaki. I know Rich Karlgaard very well, and I know Bill Reichert, who’s the President, and Bill was a client of ours. So, they’ve certainly got the management thing. Question is if the model is going to work, and I haven’t had enough exposure to it to know yet. Initially, when it came out, I just had a lot of questions about whether it would work. It might be great. I know Guy, I was on the platform with him the other day, and I know Rich, I had lunch with Rich, and they think, shit, it’s going to go through the roof, and they could be right. But, it doesn’t seem like a model that is going to produce a lot of real winners. I just don’t see it. What do you think of it?

I don’t really know.

You have reservations too?

Well, I’ve seen Guy present and explain the model.

Guy is a great presenter.

I think it’s a very interesting concept, though… So, if I’m an entrepreneur and I want to make a presentation—I know there’s more mechanics to it—but, so now I’m here, I’ve got a sponsor and I’m in front of the Band of Angels. What is my twenty minutes going to be like? Is it going to be like—speaking of angels—is it going to be like walking through hell?

No. You get fifteen minutes to present uninterrupted. It doesn’t mean that we have a prohibition on people raising their hands and asking a question, but in general we’re giving you the courtesy of that. Then after the presentation, then the questions come in. And, it’s a friendly group. So you’re not going to be held, you know, feet to the fire and you’re not going to be roasted. At the same time, you’ve got to try to find a way to spark interest. That’s a big challenge. There’s always a follow on luncheon, and that’s where the real deals are done. That’s where those who are truly interested— where you’ve hooked them, but they’re not in the boat—they come to that luncheon, and sometimes it’s as few as zero, or maybe it’s as many as fifteen who will come interested in the company, and maybe even more. And they then are given a more complete business plan and what have you.

The goal of the first meeting really is to sell people on coming to the luncheon? I’m not really asking for money yet.

Right. Correct.

And, am I going to get grilled more at the luncheon?

Yep.

So, what’s your advice for an entrepreneur in terms of preparing for that?

For the Band of Angels? Or overall?

Both. For the Band of Angels, for that presentation.

For the Band of Angels, the preparation is—the thing I counsel—is to make sure that you manage to articulate very well your value proposition, that you’ve got it down cool and crisp. And also, realistic and related to things they can understand, and that it’s not a lot of hokey—jazzed up—but that it’s a real business proposition that you can reduce to a concise… you’ve heard me call it the, I think, the SOCCO.

The SOCCO?

I call it your SOCCO, which is your Single Overwhelming Commercial and Communications Objective. Just an acronym that I got somewhere. And essentially, be sure that you’re able to express that well. Also, be sure that you are able to excite people. You know, I say, “You can’t bore anybody to invest in you.” So, there you have it. Third, be sure that you’ve answered all the questions about the management, the market, the competition, barriers to entry, financially, and exit strategy. And get that down. So you have to have an executive summary, clearly. And fourth, make sure that you’ve done due diligence on all the competitors out there and how they’ve done, because there will be people who know. Because you’re talking to 70 or 80 guys at this dinner, at least one or two of whom will know this area—in addition to your sponsor. And they’re going to ask questions. And they’re friendly folk, but they’re… they’re not fools. So, be sure that you’ve thought through carefully, that you’ve both rehearsed your presentation and give it crisply, and can answer questions without shilly-shallying. Lastly, and we see this all the time, you will want to avoid, you know, slide presentations in which you’ve got nine thousand words on a slide. Or, you have crappy overheads and so forth. People generally that do that are just telling you—the Angels—that they don’t care enough, and so forth. We’re not looking for slick presentations, but we are looking for professional. If you’re going to use PowerPoint—you know, death by PowerPoint, as we say here—but just make sure that you’ve got the messages clear, and few words on a slide, and so forth. And only use the slides as support for what you say. I think, how you explain it yourself, without the visuals, how you come across—looking people in the eye, how you demonstrate your own ability and experience—is what’s ultimately going to sell people.

Looking at the future, what happens to angel money if the market goes south? I mean, right now everybody’s flush because the Dow is, the NASDAQ is, doing gangbusters.

If the market goes south and money dries up, angel money will dry up with it. But angel money, remember, is money, it’s a collection of individuals who have money of their own, so it might be less affected. You could say that they may be, because they are individuals who have their own wealth, and maybe they’re not tied to the fluctuations of the market.

So, you think angels will weather a market downturn maybe even better than venture capital firms?

Yeah. I do, because… for the reason I just gave you.

How do you think the market is changing then, for capital? We’re seeing a lot more angel organizations, we’re seeing a lot more VCs. Do you think that’s going to continue, or how do you think that will change?

Well, the thing about capital markets is that the accent is on capital, more and more. And that the capital is out there, and so… you’re seeing convergence, M&A, and all the rest, as a way of life today. So that, I think, capital markets have changes in terms of the availability of money and the willingness to take risks, and the continual hunt with large magnifying glasses by all of these people for things that they can acquire. It’s far more PacMan than it used to be. It’s also far more knowledgeable, and it’s certainly been catalyzed and ignited by the Internet and the trends toward the wireless world, and the trends toward the integration of voice, data, and audio and all the rest. And so, the technologies that have exploded, the markets that have exploded, have all meant that opportunities for capital have exploded. And, as luck would have it, we are in a position of capital abundance, and so we are not a capital-free zone at all, and that’s very important. We’re… neither are we a capital-averse or risk-averse culture, and so the capital markets—which have seen the incredible generation of wealth for people like Bill Gates and others—are perhaps more eager than they used to be. They’re not frothy, but they are watering… their mouths water. And I think therefore, there’s a tendency for capital markets to be much more aggressive in doing deals as opposed to being cautious. Now, one big downturn or two will change that, but right now, I just think there’s a lot of chutzpah, and eagerness and aggressiveness and fear. If it’s anything, it’s not fear of failure; it’s fear of missing the next opportunity.

You have offices all over the world. What do you think about some of the differences in culture? I mean, there are a lot of people that come to Silicon Valley, that want to replicate it in other parts of the world. Why do you think this can happen here in a place like Silicon Valley, but not in, say, London?

You know, we have been the home of cowboy capitalism for a long time. I think that there is just a natural spirit of, you know, innovation and experimentation and gambling—and we call it entrepreneurship. And the entrepreneurial gland is a far more active one in the West than it is elsewhere. Now, it is being replicated elsewhere and certainly we’re seeing the clones of Silicon Valley all over the world. I had breakfast the other morning with a group, with the Deputy Prime Minister of Singapore, and they’re very eager to replicate Silicon Valley to the extent possible. He said, “I don’t think we can have an exact clone of Silicon Valley.” But they definitely want to use this model, and the government has just put up a billion dollars to invest in entrepreneurial companies. And it’s targeted, it’s also the national investment policy, which we don’t have in this country, but therefore they’ve decided that they want to do it. So, the successes of Silicon Valley—the mythology attached to Bill Gates and Steve Jobs and others, and the pace of technology, the fact that change is occurring at such a rate, and finally, the great unknown, the emergence of the Internet and what is it all really going to mean—I think will lead other countries, other cultures, other environments, to be far more aggressive and willing to gamble than they have historically. I think there’s going to be less fear of the tulip bubble, or the South Sea bubble, and more recognition of the fact that, hey, this is the opportunity train and you damn well better get on, because it’s going to pass us by. Okay?

Well, I can think of a lot of other questions that I’d like to ask you, but was there anything that I didn’t ask you that you would have liked me to ask you?

No. You didn’t ask me anything about my age. That’s good. You didn’t ask me anything about my wealth. That’s good. You didn’t ask me anything about public relations, because then we would have been here another five hours.