by bruce Wright
somo naon’s mos
manager. I you answer only to your-sel and maybe your spouse, you’re anangel. I you manage someone else’smoney, you’re probably a proessionalmoney manager.While
investors can certainlyinclude riends and amily — that’swhere many entrepreneurs get theirinitial cash — angel investors aretypically wealthy individuals whomake individual investments in acompany that oten range anywhererom $25,000 to $250,000.And it’s probably appropriate tomention “super-angels,” a term that’skind o in vogue lately. A super-angelis really just a very active angel whomay invest more than a typical angel— someone with signicant wealthand experience.On the other hand, a
is a proessional money manager,because they are largely deployingmoney on behal o other people andorganizations, such as private wealthmanagers, pension unds and endow-ments. Reputable venture capital rmsare eectively service providers thatreally understand how to invest in andbuild companies.
FN: Are the angel and venture roles un-damentally dierent in other ways?Crowder:
When entrepreneurs are just getting going, they need moneybut they also need help. That’s whereangels can be really eective. A lot o angels are ormer businessmen andwomen who understand how to startand grow a business. Many made theirmoney doing it themselves.So with that initial capital otencomes a lot o mentoring, saying here’swhat you need to do next, here’s howto incorporate your company, here’swhat lawyer you should use, here’swhat accounting system you shoulduse — a lot o the blocking andtackling needed to start a businesseectively.But because angels traditionallyinvest small amounts o capital, theytend to ocus primarily on early-stagecompanies. For the same reason,angels generally don’t invest incapital-intensive industries, the thingsthat cost a lot o money to commer-cialize, like pharmaceuticals or cleantechnology, where it can oten takehundreds o millions o dollars to goto market.Angels tend to preer companieswith products that can get to marketrelatively quickly such as sotware.While angels are a wonderul sourceo capital early on, many companiesneed more money to grow, moneybeyond what angels are willingto commit.
FN: And that’s when venture capitalsteps in, right?Crowder:
Well, don’t get me wrong,many venture capitalists also helpstart businesses.At TEXO Ventures, or example,we’re committed to providing capitalto early-stage health care companies,while also collaborating on solutions tomany o the issues that new companiesace. Being successul businessmen andentrepreneurs ourselves helps us iden-tiy with what our entrepreneurs areexperiencing. But we typically look toinvest in companies ater riends, amilyand seed investors have gotten thecompany to its rst “value infectionpoint,” its rst milestone as a business,which is oten a proo o concept.Dierent venture capital rms havedierent investment strategies, but it’sa sae bet that many like to invest $1million to $5 million in an initial roundo nancing. That money is oten usedto execute a company’s go-to-marketstrategy.But there are also some very largeventure capital rms with billionsunder management that specialize inthe later stages, in growth capital.
FN: And these investments are made toown a chunk o the new company, right?Crowder:
You got it. Traditionally,you’re always investing or equitypositions in the company because youwant to see the upside i the companyis acquired or goes public.That said, there are always newmodels popping up. For example,certain groups now are doing arrange-ments that look more like a loan —they invest in a company and arepaid back through a revenue sharingarrangement. But many investors don’tagree with this model, because theybelieve that early revenue should uelthe growth o these young companiesrather than being pulled immediatelyback out.
FN: The economy is still airly rocky, so— how’s business in Texas these days?And how badly did the recession slamour investment community?Crowder:
Well, while things are clearlynot ideal or many investors, manyolks believe that what’s happeningin venture capital is just a marketcorrection.Ever since the Internet bubble, theventure capital industry has expandedrapidly, and many believe the supplyhas just outpaced the demand. It’s notunlike what happens to specic sectorslike social media. Investors witness thesuccess o a company like Facebook and then rush to und anything thathas a social media angle to it.To be brutally honest, there areeasier ways to make money thanventure capital. Identiying compellinginvestment opportunities and usheringthem through to a successul exit ishard, hard work. Especially in the early,critical stages o a company’s lie,you nd yoursel continually acingnancing risk, managing go-to-marketstrategies and ghting to dierentiateyoursel rom competitors who are justas hungry and committed as you are.So when you hear all this doom