Peter Wilkins of Hyde Park Angels joins Nick to cover Entrepreneur-Investor Fit. We will address questions including:
- Did you consider raising a venture fund as opposed to leading an angel group?
- What should entrepreneurs think about when targeting investors?
- How do you parse which businesses need Venture Capital vs. Angel Capital vs. those that don’t need outside capital?
- Do you think entrepreneurs should take professional capital from non-strategic investors that provide limited value beyond the capital?
- What are the differences in the fundraising process between angels vs. VC?
- What does the interaction process look like between your group and founders, post-investment?
- What are the down-stream implications of taking capital from different sources?
- How does collaboration work most-often for you with regards to angels and VCs co-inveting and working together?
- Any final thoughts for entrepreneurs on finding the right investors for their business?
1-The Early Raise Process
The first question every entrepreneur should ask is do I need venture capital to grow the business?
If the answer is yes… from Peter’s standpoint, the first step is to put together some friends and family money and validate the product in the market and will help you command the best terms from professional capital.
Second, he discussed finding a super angel with domain expertise and some deep market experience that can help the business beyond just the capital. If the entrepreneur is just looking for a check early on, they will miss out on the strategic insight, market knowledge and network of knowledgeable investor. And recall Pete’s comments about how a trusted authority in a market can substantiate the opportunity, if it is pre-launch or pre-traction. Traction is always great to see early-on, but not every type of business can bootstrap it’s way to a million users.
It’s only after the friends-and-family and this pre-seed super-angel money that one should pursue groups and funds for investment… and at this point the strength of the business, it’s allies and traction will give the startup the best opportunity for a successful raise.
2- Investment as a Transaction
Pete talked about how he’s never met a successful entrepreneur that looks at this like a transaction. We’ve cited in the past how this is akin to a marriage in that you will be going through a number of ups and downs over many years… and there are no easy exits in this relationship. Most experienced angels will not treat this like a transaction and will not cut a check the first time they meet you. Excuse the analogy but there may be a few dates before this partnership begins and that should be the expectation on both sides.
3- Key Elements Evaluated
1. Member expertise matching
2. What’s the value proposition
3. Traction to substantiate the value proposition
4. Can the management team take the business to where it needs to be for the next round of capital
5. Likelihood of getting the next round of capital?
Tip of the Week: The Post-Seed Plan
Nick: Peter, can you start us off with your background and how you became involved in startup investing?
Peter: Yeah absolutely. So, I’m a serial entrepreneur and I kind of look at myself as an operator. I’ve been in three different startups and I did a turnaround for # KKR. The focus from an operator’s perspective is how do you grow a company. And as I was able to drive some success as an operator, the idea of how do you invest in a entrepreneur and help them achieve their dreams, that was something that really motivated me. So when I had the opportunity to get involved with Hyde Park Angels about 7 or 8 years ago after I exited a business that I turned around, I jumped at the opportunity. And I thought that it would be a good blend of what I do or how I think as an operator plus helping grow the ecosystem through investment and creating an avenue for those who follow my path to do things that they probably would do much better than me.
Nick: And most of your experience is in healthcare, education and technology?
Peter: Everything was technology enabled. I was pure tech in the beginning. The first startup I was with was how do you move data to the last mile so that the consumer can have an optimal experience. So it was pure tech, the first two. One was Interview1:32 which was bought by # Alchemy, which is still a big player in the market. The other one was called IB and we brought the data via satellite to the last mile. And we actually took that company public post bubble. It was acquired by # WilTel which was acquired by # Level 3. So basically with that tech background, I went to another organization that was a client of ours that recruited me. And their focus was how do we use technology to provide education. They were doing is via satellite but they felt they could do it a better way. So my understanding from a technology standpoint is we focused on four verticals- healthcare, financial services, consulting and technology. And we started to create value add-on-tech. So I took my technology background and started showing how can you effectively communicate to participants in a manner that they can learn in a self paced way through a variety of different things. So I did that in healthcare and I also started a business that tried to help do that in the Latino community, helping Latino families, getting their students into college and beyond.
Nick: So first angel investments, was that early 2000s as a member of Hyde Park?
Peter: You know I probably did a few before Hyde Park Angels, but the bulk of my investments have been through Hyde Park Angels and I’ve witnessed now 40 different investments overall, both through myself and through the group.
Nick: So maybe we’ll get into this more in the interview today, but did you consider doing more of a venture fund as opposed to joining the angel group and deploying your investments through that sort of structure?
Peter: No. So it’s, I’m probably a little bit different than the typical VC. I mean, I’m an operator through and through. And I think that, you know, I really, I think even how Hyde Park Angels has transformed itself, I think we are , if you look at a group of a hundred members, the idea is to take the human capital and match it with that entrepreneur, and taking our experience of starting, scaling and selling companies, and being able to couple that with an entrepreneurial dream in what they’re doing. And so that is where the juice, so to speak, or the excitement about this whole ecosystem is where I’m aligned. So it’s more like human capital, then matching it with financial capital and getting some skin in the game.
Nick: Yeah I did an exercise where I was comparing VCs versus angels versus syndicates versus lone wolves, and a friend of mine out west, a good investor out there in Santa Barbara, immediately emailed me when the podcast came out. And he said yeah but you forgot that as an angel you get to work upfront and personal with the entrepreneurs on a regular basis, you get to interact with them, and it’s just exciting kinda being right there in the ecosystem. So it’s definitely a major part of being an angel.
Peter: And I think that, if you asked me, if you go to KKR which has, KKR Capstone, which is an operation group that works with their portfolio companies and it drops world class operators into Fortune 50 companies or Fortune 1000 companies. They believe, these mega private equity believe that what moves the needle is people. It’s the experience, it’s the expertise, it’s looking at, not how do I financially engineer success but how do I really build an infrastructure that’s going to drive business success. And at the end of the day it’s people. If you look at Hyde Park Angels, and I think this is the exciting thing is we have that capacity to do what some of the largest private equity firms do. It’s just that our members are those that have had that experience. And right now just to give people an idea, like Hyde Park Angels won’t invest in a deal unless we have a member that has some domain expertise that they believe they can really move the needle. And fortunate for us, we usually have two or three or four guys that have done that. And so I believe it’s not only rolling up your sleeves, but I think it’s also operating against the best practices type of platform. It’s, people grow companies, startups most likely have entrepreneurs that are learning the market, they’re creating new markets. And so if they have somebody that has expertise or —-5:30 and capital, they sit next to them. I think you can have some really special things. And I think that one thing that’s different to an angel group and a fund is that funds have limited resources that they can deploy just because that’s the economics of how many people they can employ. An angel group, because they give 100% of the return on the investment back to their member, create kind of a unique economics. So the members like to stay engaged with their investment and they’re getting their return. They don’t have to look, you know, like if they were involved in the funds sometimes they’ll take a point or they’ll take some fees. In our situation, it pays for themselves.
Nick: Great. Well, we’re getting into some of the content for today’s episode. And I wanted to start out from the entrepreneurs perspective. So Peter can you talk about first what entrepreneurs should think about when they’re first launching a fund raise and who to target from an investor’s standpoint.
Peter: I think the first thing that an investor, I’m sorry an entrepreneur should think about is do I need a capital partner? Because the further you can take your business without finding a capital partner, the less likely you’re going to have to compromise ownership and control. So equity and control. And I think that when you’re looking at that, I think a lot of times entrepreneurs get so caught up in the idea of Hey I’m going to fundraise and that’s going to validate my business to show that it can go into the market. And so they kind of get it mixed up in a way that they’re looking for venture capitalists to validate their model. In reality, the market validates their model
Peter: So if they could focus on that business, I think that when you’re looking at that validation, what will come across is some businesses need venture capital, some business need debt products, some are going to be in the best position if they never even go through the venture capital process. There’s a number of folks in Chicago, and I support them, that say hey let’s really take a close look before I choose to get venture capital. Kind of swinging back to answer your question, so my first thing is do I really need a partner that I’m going to have to give up some control and some ownership to work with them. And I think if the answer is yes I need it because I don’t have enough capital to do it or I need money to fuel my growth or what have you. I think that then you start to try to determine how far along is my business and who is going to provide, and I believe this is critical, who is going to provide the expertise to help me get to that next level. And so you start to assess what is that expertise and look at a group versus a fund and determine will I be able to get that expertise from that particular organization. So I’ll pause there and we can kind of dig into these ideas a little bit further.
Nick: Yeah, following on that, so how would you parse which businesses need venture capital versus maybe angel capital versus some businesses which maybe they don’t need capital at all, and you’re providing some advice to them on strategies by which they can grow and they can maybe become a lifestyle business of sorts?
Peter: To be honest with you, the difference between an angel group and an angel, an active angel investor and a fund is kind of murky. And you probably can relate to that. For those that aren’t really clear the difference I’ll just state it so I can then speak to these in a little bit more, in more depth. I think that an angel is a person that is investing their own money. A fund is somebody that is investing somebody else’s money. And an angel group is a group of angels that are investing their own money collectively.
Peter: And I think there’s a spectrum of how groups operate as well. From like Hyde Park Angels, which is more like an institution that has processes and procedures. And then you have groups that are more member driven in a sense that one person decides on the deal and then everybody else follows afterwards, and there’s not necessarily a process.
Peter: I think that the entrepreneur, what they got to decide is where are they in validating their product in the market. First round is if I choose to get capital, I want to try to get capital from friends and family first. That’s going to allow me to get the most traction, which is going to be able to show that I’ve validated my product in the market, which is going to allow me to command the best terms for my organization. What I would then look at is if you have somebody that has been there done that, super expert, that’s like a a super angel, that is really favorable for an entrepreneur. I would look for that in that next round of capital need. Many people have heard # Chuck Templeton, lines up pretty well with # GrubHub , # OpenTable
Peter: So if you’re lucky to find someone like that, it makes sense. If you can’t find somebody that is aligned with expertise, you’re just getting capital from that super angel, I think you got to make a closer look at your next options. The angel group depending on the capital you’re raising, can be a great next step. That once again, as you look at the expertise they’re providing. What I look at if I was an entrepreneur too is who has that angel group syndicated deals with, how helpful will they be able to grow my business from A to B from an operation perspective. And then how helpful are they going to be able to get that next round of capital from a fund. If I then break in the fund where Hyde Park Angels will never be the lead for a Series B, do they have the track records as they group to help me get from validating my market with Series A or pre-Series A funding to Series B. And I think those are areas that I would look at.
Nick: Do you think entrepreneurs should take professional capital from non-strategic investors that provide limited value beyond the capital itself?
Peter: It’s the price of money you got to start evaluating. And so getting aligned with somebody operationally is really valuable. You also have to really trust them. If you got a great team, you’re always looking at what the cost of money is and so human capital and financial capital are the equation you’re looking at. And
Peter: you got to be able to pick the combination that best suits you. If you’re a complete novice and you’re just taking money, most likely you’re taking the wrong money
Peter: and I’ll tell you taking dumb money, some people feel that if I’m dealing with an unsophisticated investor, as an entrepreneur I might have better control over my destiny because they’re not familiar with all the different elements that a sophisticated investor would look at
Peter: That becomes very slippery too because the more you can structure the deal now as you gain success in the market, you’re going to want sophisticated investors to follow on. And if you have a convoluted term sheet and the structure of your deal is completely off base, you’re going to start from ground zero too. So I guess to answer your question, yes you don’t always have to have operational or strategic capital behind you. I think it’s a mix of human capital and financial capital that each entrepreneur has to figure out what is the right mix for them.
Nick: Yeah, sometimes I interact with entrepreneurs that are thinking of it not as partnership but purely transactionally. And it’s, it’s going to be a long arrangement for a long period of time if you’re successful. And so those that think of it as a transaction are making the wrong move from the very start.
Peter: I mean, without a doubt. I mean, this is you hear it a lot, right. I’ve heard it a lot lately, choosing this relationship is probably more important than choosing the right partner from a marriage perspective. Because if you are successful, you’re going to be with these folks for a long time. And it is unlikely that every day is going to be a good day. So you got to figure out who is the partner you can work with that after a really bad day and not seeing eye to eye on something, that you think you’re going to be able to walk out of the room and do something in the best interest of everyone else. And so it’s not a transaction. I’ve never met a successful entrepreneur that looks at it as transaction oriented. And that is something so critical to really focus on. One of the things I always hear venture capitalists say is team, team, team, you know, like location, location, location. But I think that to entrepreneurs, it is who is my partner partner partner. And I think you got to evaluate them so closely to figure out will this person be right for us. Do they bring the right network, do they bring the right experience and do they bring the right temperament. I cannot emphasize that enough because you look at the 40 portfolio companies that we’ve had, 30 that are active right now, there is a lot of work, that you’re working with the entrepreneur, rolling up your sleeves, trying to help them figure out something that’s difficult. It’s not always easy. And there’s not always a match. And I think trying to figure that from an entrepreneur’s perspective is really critical.
Nick: So lets talk about process, differences between the process of acquiring capital from venture capitalists versus the process of getting funded from an angel group?
Peter: So let me talk about how Hyde Park Angels, the process there. Because I think angel groups there is a big spectrum of what the process is across the board. If I look at how Hyde Park Angels does it, I think that our first process is do we have member expertise matching up with the startups market. And so that is something that we just started really honing in on after 8 years or so. Because what we found is the deals that we knew we could lead, drive through the whole process, that domain expertise, became important for two things. Number one, connecting with the entrepreneur. Number two, communicating to the non experts in the group why this is a good deal. So we have a match then we could look for other people that also shared similar experience either in that market or that domain expertise and we build a team around that. And that allows us to do real life domain expertise valuation, and also form a relationship with the entrepreneur. That’s our first thing that we do. What we have learned by taking that process and really implementing it is our core first step is we get to know really quickly. And I think that what we had done before is we looked at market opportunity, traction in the market team. But what I learned is that if we ultimately didn’t find somebody that could really vouch for the company and the group, all those things didn’t matter because we probably had a 50-50 shot of funding it. But if we start with that expertise, we can say hey you might have a really successful business but it’s not a match for our group. So we don’t want to take you through a long process to go through it. So let’s say, let’s agree that the entrepreneur has a company that is matched up with some domain expertise at our group, then what we look at as far as the process goes is we’ll take a look at what is the value proposition that they’re bringing in to the market. And I think value proposition is used a lot. But I think that the way we can try to hone it down is what is so disruptive about your product or service that somebody’s going to change their current behavior to start using your product, and then develop a recurring pattern. And then that recurring pattern could be once a year, five times a year. It could be five times a day. We can figure out what that is but it allows us to see wow people are changing their behavior because you have something that is so powerful it really makes a difference. And that’s sets up the next element for our process and it’s traction. Let’s go validate how much traction you have. And I think that traction will be validated if you are a pre-revenue company, your traction might be validated by having subject matter experts that can come in and say this will disrupt this market. Clearly that’s not as strong as if I have 5 million users coming back 5 times a day. But it’s a spectrum, and I think that’s where we can understand what the company stage and their life cycle is, to validate is there enough evidence that supports that their value proposition is accurate. And I think that’s where I hear a lot of entrepreneurs say to me hey it’s unfair the process, you’re not validating the right things. And I think this becomes really fair is if you tell me what’s your value proposition and what people should be doing, we should find some evidence that they are doing it.
Peter: And if we find that match, which a lot of partners can’t prove that, they’re still trying to find their way, but if we can validate that and we see complimentary markets that they might be able to expand so a pivot might occur, and we think that that comes together, what we really starting to do is evaluate the entrepreneurs logic and their solution . And so that logic becomes critical. So value prop, traction, then it becomes team. A lot of investors, and I will tell you a lot of angel investors sometimes get into a position where they’re looking for Steve Jobs, somebody that started the company and grew it to, you know, a mega brand. That is rare to happen. And I think that as Hyde Park Angels is evaluated at, what we’re really looking for is somebody that can grow the company from the day we invest in them to that next significant phase. And that’s usually a funding round. It allows us to say he this person is capable and confident and the team that they’re with can get it far enough along in the market to validate the market and get that next round of capital. At that point of time, we can evaluate can they get it to that next phase in the market. I mean, just for all you entrepreneurs out there, different people have different skills. It doesn’t mean you’re a bad entrepreneur or a bad business person. And just understanding what you do well becomes critical. As an investor, switching out the management team from the time I invest in a pre-Series A to a B is crazy. Like if, so from my position it makes our analysis really simple because now we can evaluate do you get it from point A to point B, can we bet on you’re going to do it, you and your team. And so we can say hey you got the skill set so you got value prop, you got decent traction, you got the right gal or guy in the position, and then the next element for us in the process is. 7 years ago when I first started angel investing, I was ignorant. I thought that I had a better understanding of how to pick winners and unicorns and all of that. But what I’ve learned is that that’s pretty hard to pick a company that’s going to be that unicorn or business. What we’ve also learned as a group is lets narrow the time frame of how we’re going to evaluate that company. So what we get really focused on is if I invest in the Series A will we be able to get that Series B investment? Because that’s going to show that they’ve been able to meet enough of the milestones to validate the market. Now I can get capital to fuel it’s growth. And so that’s a risk profile that angels have to really have to have a clear understanding that we’re taking on a lot of the risk. But hopefully we’re going to get the right mix of control and equity as a result of that. But also makes the evaluation a lot easier. Because the likelihood I could evaluate somethings going to be Apple or if it’s going to be GrubHub or if it’s going to be BrainTree or if it’s going to be, you know, many of those that don’t make it, which we don’t have to name names. It makes is simple. So you know, in summary what I would say is we look number expertise matching, what’s the value prop that changes behavior, do we have traction to really show that that value prop exists, does the management team can they take it from where we are now to that next round of capital, and whats the likelihood that we’re going to get that next round of capital. That’s our process. The one thing if I’m looking at a VC that may be different is they probably do the same thing, I don’t think they typically have the same depth of a bench as a 100 member organization like ours. But they have folks that they tap into, and they also tap into organizations like ours that we bring expertise. But they do something that we’ll see us do a lot of work with them too, is because they syndicate with us. So we can help hedge our bet, so to speak, because we’re going to be involved in a round with a venture capital fund that will lead that next B round and above. But on the flip side, sometimes we feel comfortable with our domain expertise that we’ll write the note, we’ll lead the round and we’ll feel confident in the entrepreneur that we can get it to that next Series B round as a result.
Nick: So do you guys lead rounds as well as follow, if there’s already a note or a term sheet in place or are you exclusively leading rounds and then looking for co’s or followers?
Peter: We do a mix. And I think that this would be a critical point that I’ve learnt with looking at angel investors. And so to the entrepreneurs, it’s important to understand what the risk profile is of an angel investor. And sometimes unsophisticated angels are looking for a private equity company, where they want to see the cash flow and the profit and they want the right management team. But they also want 30% of your company for a $100,000 investment, which is ludicrous. What you have to really match up is what is the risk profile that you should expect. And what you should expect is that some of these things aren’t perfect. They’re still being proven. And so I’m willing to make this investment to get a fair portion of equity and control to allow you to get to that next round. And so that becomes, as an entrepreneur, a really critical element to evaluate yourself, do they have unrealistic expectations. Hyde Park Angels has matured significantly to understanding that. And I think that this is going to go back to your question is, because I have some folks that have deep pockets or have deep experience, they can come in and say hey this thing isn’t really flushed out all the way but they’re on the right track and they got a pretty good team, and I believe it’s ripe for the picking. So if I have that, we’ll write the note, we’ll lead the note. But it’s not because we’re some maverick and we don’t want any other investors. I think that we can relate to the potential and therefore we find ourselves in a lead. It’s not like I want to lead or I want to only do syndicates. It’s a matter of the right profile for that particular company and the right domain expertise with our member, to say I feel comfortable in investing in this fashion.
Nick: Right. The entrepreneur doesn’t need to be the world’s greatest expert at day one, right. But they just need to have the deep domain expertise and the desire to learn and to grow with the company and get the sophistication as their hitting scale.
Peter: Yeah. That’s where if you have a member that says hey I feel pretty confident that I can help narrow the number of choices this entrepreneur needs to make, from ten decisions maybe down to three decisions. Because I have enough experience that I can help, they’ll never be able to tell you exactly how to do it. Our FinTech group is fantastic and what is interesting is they have all areas of expertise from security to alternative monetary options to what does the actual banking system look at. So a couple of our deals in the FinTech we were getting a little bit earlier on, we know the risk but they feel like it’s ripe for the undertaking and they can use their experience in the rolodex hopefully to make things happen. And so we’re writing things much earlier than we would have ordinarily, but because of their deep experience it allows us to do that.
Nick: Yeah, I think anybody going in to this, we need to appreciate the fact that they’re not all going to be winners and it’s a Power Law industry. So a few of the returners are going to make up the returns for the entire portfolio.
Peter: So to give you a sense out of our portfolio, we have 30 active right now, you know, we’re still on a marathon so there’s a lot of race to run. But as we look at our portfolio, 64% of them are rated green. And our system is pretty easy, red, yellow, green. Red is bad, yellow is okay, and green is pretty good. But 64%, we believe are on track or progressing towards what we believe is acceptable and we’ve established that with them. 64% are green.
Nick: Wow, okay.
Peter: And 20% we believe have high return potential. But I think that the 64% which is a little bigger number, is because they may not be a huge winner but they very possibly could return their money or two times their money or something that wouldn’t be a home run. But I think it’s because we have folks that can work with them and get them to a much better outcome than crash and burn. And so that’s where that domain experience helps. You know, when successes come and like everybody says oh Google is the greatest company and has the greatest culture and they also have the most stinking money from a cash flow perspective, they have a lot of ability to formulate and create structure around great things. When you’re a company that is barely making ends meet, it’s pretty hard to be investing in the culture and all of those things. So having somebody help you figures on what are your priorities so that you get a little longer runway, a little more traction. 3 months, 6 months, can be the difference between success and failure. And a little bit of
Nick: You talked a little bit about the domain expertise and the working with entrepreneurs. Let’s assume you’re post investment with a company. So you’ve, you’ve already deployed the capital. What does the interaction with your group or maybe a certain member of your group look like with that entrepreneur they’re after?
Peter: There’s a couple of factors, we’ll be, if we’re active and we provide domain expertise, many times we’ll be on the board or we’ll be an observer, we always have a role we call Deal Lead. So we invest as an LOC and as that LOC you get one line on a cap table for entrepreneurs. And for those entrepreneurs that are new to that, you don’t want a lot of people on your cap table. So it usually makes it really effective. And so we have one point person that’s always staying on top of the organization. The factor that we see that really control the likelihood of engagement with the portfolio company is what is our expertise and the value we’re bringing regardless of those roles. We have some roles that we’re not on the board, we’re just the deal lead, but we have somebody that has huge expertise to help that company. And so they’ll become a quiet supporter if they’re not in the observer or board role. But we also have many that, approximately 33%, we have some sort of official border observer role. In that, first and foremost, you know, like any board is we’re trying to help them achieve their milestones through their strategic plan and to provide the resources of the organization. What we have set up is a portfolio advisory board and that’s an umbrella group that meets with all of our board members and observers and deal leads to do a quarterly report on what we’re doing, and then from that we can create action plans based on what our portfolio companies needs are.
Peter: That allows us to effectively start to deploy our resources. And I would say we probably have 60% of our portfolio companies that are taking advantage of that. Some of these just in fairness is we’ve invested alongside a syndicate so we’re more passive money than we are lead money. And therefore it’s not our role or our place to be providing resources unless they ask for them. But that is a core element that we have. And I think that looking at 2016, you’ll see more resources provided to our entrepreneurs. Right now what we also do is we provide programming. So we do programs with our partners at our corporate ventures like # CME and # Molex, etc. And we bring in our executives, their seed teams for certain other programs as well as our board members and focus on topics that will help them grow their business. So this half of the year our programs which is invite only just for our port cos and indus group, we’re going to cover al the resources that the state has to offer. And so we’re bringing in leaders of Chicago Nacs 8:06, which is world business of Chicago, the Illinois Science and Technology Coalition, the governments resources, as well as ITA. And it’s how do I tap the resources within the state to grow. And what we’re trying to do is shorten the education cycle that is to get to these sources, and then we’re trying to build relationships with the people that are making the decisions. So we think we’re trying to build value in multiple ways.
Nick: Yeah, I’ve got your education series here in town as well as some of the content that you guys have published on medium, definitely very helpful, not only for entrepreneurs but investors as well.
Peter: And what we’re trying to do with that too is for all you entrepreneurs out there, the sad fact is we love you but we can’t marry all of you, which would be crazy, I think there’s laws against that. But what we started building that series which is free, we did it in conjunction with 1871, we actually go to other incubators and resources and do smaller versions of it. And we have this weekly blog is because we want to help a 100% of you. And at kind of at the beginning of the session we were talking about making decisions, do you need capital, you do not need capital, and how do I get it. And that’s what we focus on, because I think we’re experts in that. And the more we could educate entrepreneurs how to navigate that through the sources we provide them, the better decisions they’ll make and probably the better partners we’ll have that we invest in. Because we’re helping them figure out who’s the right capital partner, if they should get a capital partner, in this process. So that’s why we started doing that. That’s been rolled out this year. We’ll continue it next year and we’re trying to help as many people as we can.
Nick: You know a lot of people will talk about to VC or to Angel, and it’s, it’s seen as this polarizing way to get capital from two different sources. But more often than not, it seems more collaborative than it is a competition between the two. Can you talk about your outlook on either working with VCs or if in fact you find yourself competing against them?
Peter: I always say we’re Switzerland when it comes to that. I think we provide a lot of resources to entrepreneurs and we provide those same resources to venture capitalists. We probably have syndicated with close to 40 and I’d have to go count, but quite a few both in the mid west and on the coast. And our view is that our members provide some serious expertise that can help portfolio companies from a board perspective. Venture capitalists on the coast know that they got a trusted partner with us. The other thing is we’re never going to compete for the Series B. I’m not trying to get a certain IRR or a certain return through this investment that could be awesome. So the competition factor knowing that I’m not ever going to try to get bigger and bigger portions, we’ll always fill our pro-rata, or at least that’s what we always try to do, but we’re never going to compete with you in that meaningful next round. So we don’t compete, I think that the only time we may compete is if a fund wants to lead a round. But I can’t think of a time where I’ve said absolutely not, you’re not going to lead that round. Sometimes we’re in the process of putting a lead role together and if they come in we’ll do what’s best for the entrepreneur and figure out how everybody could benefit. Because what we usually tell an entrepreneur is if a fund wants to come in, more capital, more strategic institutional capital is going to benefit you down the road.
Nick: You know, I’ve found that with early stage investments, with seed investments, often developing relationships with VCs that are at A and getting to know what they’re interested in, what sectors they invest in is much better than viewing them as competition. Because you got to provide some inroads to entrepreneurs and you got to provide introductions and you got to understand what their requirements are going to be at A in order to help the entrepreneur get there.
Peter: Yeah absolutely, agree a 100%
Nick: Any other things related to angel capital versus venture capital that you would like to highlight before we close up?
Peter: So maybe just to sum by, to summarize it, I think that as an entrepreneur you got to decide should you really get a capital partner. And then I think when you are looking at that, you got to evaluate is your business a lifestyle business or is it a business that you need venture capital and a partner to grow it. And I think from there what you want to do is take really deliberate steps to figure out how you get the most capital efficient or cost efficient capital possible. And so you look at your different steps and friends and family, then angel, then angel group, then venture fund. All those start to blend. But it’s really how do you put capital into your business most efficiently. The one thing when you’re looking at efficiency, when you make that decision to work with a capital partner, is you’re taking the mix between human capital and financial capital. So a little summary of the 60 minutes that I’ve talked down into 30, which is probably the best that I can provide
Nick: Peter, can you talk about what you’re currently up to at Hyde Park and what’s new with the angel group?
Peter: Hyde Park Angels, our focus is attracting members, companies and helping building the community. So our focus are on all three. We feel that our ability to get operators that have started, scaled and sold companies is critical to our ability to effectively attract the right companies and support them post investment. And because our members that come in that can invest their money in funds, in indexes, in a variety of different ways, they’re investing in entrepreneurs with their money and their time, so they want to see these entrepreneurs be successful and they want to see Chicago be successful. And so our focus, and I think in the last year you’ve seen this, it’s been building our membership, more engaged with entrepreneurs, not only those we are investing in but those in the community. 2016 which will see us building out is focusing on ways that we can help support our portfolio companies. We’ll take a focus on what resources can we bring to our executives, our entrepreneurs that maybe will shorten the gap or accelerate the pace or eliminate another path that they might have gone down that they shouldn’t have gone down. And so I think that we’re going to start to formalize some of those programs and build on that to provide better support for our investments.
Nick: Any thoughts on Chicago and how the ecosystem has evolved and how the ecosystem has maybe changed over the recent years?
Peter: I think it’s changed dramatically and I think that there’s a lot of stakeholders that were leaders in that market. The success that # Lightbank and their portfolio companies that # Eric and # Brad have brought to the market, and # Groupon, there’s a lot of success that was driven. Out of # 1871 in which # J B Pritzker and the mayor and the governor did to build that, and what # Howard has done and what # Kevin started, that was great, what I think are very important. And then what # Fred Hawk is doing at # ITA and Techs nexus 15:11 what’s going on at CIE, Chicago Innovation Exchange, you look at what they’re doing at University of Illinois Urbana. And what is the most powerful feature of our community that was different than when I started in this whole startup world, is you have these successful groups like I just mentioned, and I apologize for all those that I forgot because there are a lot of others. But they are successful independent, but they’re starting to be overlap of their success together. And as a result, their success starts to build pockets of activity, both investment and startups that weren’t on the map before. And so you have GrubHub and BrainTree and Trustwave, they are big big time exits. And so what we’re seeing is we’re getting new members that have made some fresh capital that want to go help these folks. And what’s great is these circles don’t know each other. The more we get people operating that they don’t have this constant overlap but you have independent thinkers that have been successful, they can help more people and more success and more relationships are built. And that starts to bleed in to corporate America. So if I’m at Motorola Solutions, I’m like you know what, maybe I will go try that startup because my buddy who was over at Trustwave just had some tremendous success. And so I know that there’s different pathways to build a success. So I think that the pillars of the community are starting to be established. I believe that Hyde Park Angels is one of those pillars that we started early on that is being built around. It’s awesome to see all these other different angels investors. And I think that, you know, different people have different perspectives about capital in the market, but from an entrepreneurs perspective, I mean it is awesome for you. And I think that it helps companies that might not fit in to that perfect mould get a start that allows them to just grind it out. And now they got another avenue within these pillars that they can go get funding from. Where before you would have one shot, one and done, and it would be gone. So the whole community is growing. You saw some visionaries that started to put those pillars in place. And I think as a result it’s lifting up the entire community. And that is much different than twenty years ago when there was just a couple of beacons that were hopeful and unfortunately some of those didn’t work out, so the whole community kind of deflated, and that’s not the case anymore as there’s a lot of organizations that are building Chicago in the mid-west.
Nick: If we could address any topic in venture on the program, what topic do you think should be addressed and who would you like to hear speak about it?
Peter: If there was one thing for the broader market, understanding as an entrepreneur how to build on your strengths, how to have self awareness around the opportunity so that you can clearly parse what is reality and what is your perception, because you have such an optimistic view. And that can be translated into how you raise capital, how you evaluate the market, how you evaluate your product market fit. And I think that comes from behavioral economics kind of bend. How do you give entrepreneurs a really good sense of reality without completely eliminating their optimistic view of what the market is? And so, so when I spend a lot of time talking to entrepreneurs, I try to do mentoring around that, based on my experience as an investor, as an entrepreneur. And that really comes down to the psyche of a man or woman, and I think that that becomes really important to build them up and also to help them make realistic decisions.
Nick: Any experts on behavioral economics that you’d like to see talk about it? Maybe somebody down in Chicago or
Peter: that’s what I, there’s a , you know, there’s
Nick: I U Bloomington, right
Peter: Guys from Nudge and so forth will be, you know, they’re considered experts in the field for sure.
Nick: Forgot to ask you before but I’m curious, what do you think the prospects are for the Indiana University basketball team this year, after some controversy?
Peter: I would say that they are a little bit above average. I’d say out of one to ten, I’m going to give them an eight. Which is, I guess I am way too big of wanting to relive the glory days of IU. So I think any opportunity I have to believe that they, I mean they are ranked 14th and I know that recently they just kicked that guy off the team and I know that there’s a lot of commotion. But I got to believe until the season starts and then we’ll kind of roll it out and see how they roll.
Nick: So you’re investing or you’re passing?
Peter: So if it was an investment decision I would pass.
Nick: Very good. Alright, Peter, what is the best way for listeners to connect with you?
Peter: The best way for listeners to connect with me is to follow me on Twitter @peter_wilkins . One of the best ways to connect with the group is @HydeParkAngels . On Twitter we have a weekly blog on medium that I encourage you to subscribe to. We also have a monthly newsletter that will convey this information, so you can go to hydeparkangels.com . # Alida Miranda-Wolff is our chief community outreach expert. She drives that material and she puts together through our experts and others in the community. It’s a great way to be able to build on some of the things that I talked about and stay in touch with what we’re doing.
Nick: Well Peter, I know the Great Lakes region deployed more capital in 2014 than any other region including California, according to the most recent Halo report. And I know that HPA is a huge force in making that happen. So thanks for all your efforts here in Chicago in the greater region, and thanks for coming on the program.
Peter: Yeah, absolutely, it was my pleasure.
Posted in: Podcast Episodes
Tagged with: accelerators, Angel, Angel Investing, AngelList, Crowdfunding, Entrepreneur, Founder, incubators, Investing, Investor, pitch competitions, pitch deck, Seed, Series A, Start-up, Start-up Fundraising, Start-up Investing, Startup, Startup Fundraising, Startup Investing, tech investing, technology, VC, Venture, Venture Capital, Venture Capitalist
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