I was recently quoted in a story on startup fundraising where I was identified as a "Venture Capitalist". This is not the first time I've been incorrectly labeled a VC. I can see how the confusion could arise - my operating entity for direct early-stage investing is named "Aprilis Ventures" and our website homepage identifies us as the "venture capital company of angel investor Jesse Rasch". Since I'd hardly want my untraditional approach to seed and early-stage private equity to sully the reputation of ordinary venture capitalists, I thought it prudent to better describe the nature of my startup investing.
The following 10 points provide an overview of my approach to angel investing. In future posts, I will elaborate on my criteria for making investments and fundraising tips for entrepreneurs. Of note, there is a fair amount of commonality here within to my approach to funding non-profit projects through my charitable foundation.
Flexible Investments Parameters
I only invest on my own account. I have no limited partners to answer too, no fees on assets under management to maximize, and no minimum deal size constraints. The latter point is important, as most early-stage VCs faced with a promising company that does not require $2.5MM+ in funds are forced to choose between overcapitalizing the company to get the deal or passing on the opportunity all together.
Most companies I work with raise between $200K and $2MM in their first round. This broad range represents companies at the opposite end of the startup spectrum - from two university students working on an idea after classes to a team of serial entrepreneurs with early revenues and deep domain expertise.
A Gut Feeling
At this stage of investing, early in the company lifecycle, I rely more on my gut feeling than cumbersome due diligence. To a large degree, I believe success is inversely proportional to the amount of due diligence performed on an investment. The more deeply we analyze a company the more reasons we can find to say no.
First Round Focus
The majority of my self-directed venture investing is in seed and early-stage ventures. It is at this stage of company formation where I derive the most satisfaction from working with entrepreneurs. I will occasionally invest in later-stage companies when we have either deep domain expertise or the entrepreneur is well known to us.
Significant Bootstrapping Expertise
Having bootstrapped a number of businesses from the idea stage to a cumulative equity value of nearly half a billion dollars, we have proven company building expertise. We are not armchair investors. We live and breath an entrepreneurial existence and share common ground with our fellow entrepreneurs.
An Entrepreneurial Perspective
With a long history of entrepreneurship, I take a very hands-on approach to venture capital. Capital is widely available; if all an entrepreneur seeks is funding, he should go talk to a VC. In most cases, the investment of our time, knowledge, experience, and operating assistance appreciably outweighs the value of our capital contribution to a business.
Historically I operated as a lone angel, often providing the sole source of funding for seed and early-stage startups I worked with. As I return to more active investing in the startup space, I am increasingly collaborating with other entrepreneurial investors to expand our investment universe and bring additional expertise to ventures I fund.
We are not VC Taskmasters
We consider our role to be consultative and collaborative. We are an entrepreneur's partner, not employer. Many entrepreneurs receive a rude awakening to the power imbalance present in the relationship with their VC. An entrepreneur who does not choose their investor wisely may find themselves sharing their bed with a VC dominatrix. The venture capitalist as a destructive force is not without precedent.
For the record, I have no personal disdain for venture capitalists. On the contrary, I am an investor in numerous venture capital funds and I count a number of venture capitalists as personal friends. However, any good venture capitalist will tell you that not all venture capitalists are good. Most merely perform a perfunctory role as lenders of unsophisticated risk capital to the startup ecosystem.
There are of course excellent venture capitalists. Nevertheless, in analyzing the performance of VC funds, there is a significant skew towards top-decile firms. It is immediately evident that the majority of VCs will deliver very poor risk-adjusted returns to their investors. This information is useful to an entrepreneur weighing the value a prospective VC brings to the table - statistically, there is likely to be no value.
A Partner You Can Count On
Many entrepreneurs are forced to early or untimely financing or liquidity events by investors who exert undue influence on the entrepreneur's company. While it is important for an angel investor to see a path to an exit, it is critical that an entrepreneur align himself with an investor who will be an enduring partner in both good and bad times. We stand by our companies through thick and thin.
Selfish Personal Interest
As a general investor in numerous asset classes, my direct investments in venture capital represent a small percentage of my overall investing activities when measured on a capital basis. However, when measured against time, life's most precious commodity, it is immediately evident that I spend a disproportionately large amount of time wearing my angel investor hat.
This is important to emphasize. A skillful entrepreneur or investor will never run out money, but one day, they will run out of time. How you spend your time is of the utmost importance, as it is a constantly depleting asset. The fact that I often spend more time than is economically rational working with startup entrepreneurs is a reflection of my genuine interest in promoting a culture of entrepreneurship. In this regard I could be considered selfish, as I often derive more satisfaction from my working relationship with an entrepreneur than I derive economic benefit.
The Best of Both Worlds
Put most succinctly, my early stage investing activity is a hybrid of angel investing and venture capital. Maybe that makes me a Venture Angel, or an Angel Capitalist. In the final analysis, the label is not important. There are easier ways to engineer financial returns in the business. We see ourselves as a true partner to entrepreneurs. We actively help to build an entrepreneur's business by leveraging our knowledge, experience, and network to create a successful company.Back to Archived Essays