Rusinow: Silicon Pastures founder says angel investing not for timid
By Brian E. Clark
After 22 years in retailing, the last six spent with Kohl’s, Jeff Rusinow was ready for something a bit more exciting.
He found it in angel investing and went on to start Milwaukee-based Silicon Pastures, modeled after a similar and highly successful angel group in Northern California.
Angel capital typically fills the gap in start-up financing between "friends and family" who provideinitial seed funding, and venture capital.
Rusinow will share his insights into early stage investing at the Wisconsin Entrepreneurs Conference, which will be held Tuesday and Wednesday at the Pfister Hotel in Milwaukee and is expected to draw 400 participants.
Rusinow left Kohl’s in 2000 and soon began talking to other high-networth investors about using their money to back start-ups.
At the time, he said, angel investing was a term few had heard of in Milwaukee. (Madison was a different story because of technology transfer efforts by the Wisconsin Alumni Research Foundation).
And while the figures have risen since then, he said the average per capita venture investment in Wisconsin in 2002 was $31, compared to $776 for the nation and $2,000 for California, New York and Connecticut.
“Make no mistake, there is still a real aversion to risk in Milwaukee compared to other parts of the country,” he said. “It is something that has defined the mindset of the business community in Milwaukee compared to Minneapolis, which has a rich tradition of investing in medical technology.”
Some of the investors who would eventually make up Silicon Prairie first met in his living room and later in restaurants where they would hear pitches from entrepreneurs Rusinow had vetted. Most of them were from Wisconsin residents, he said.
“When we started Silicon Pastures, our investors initially were reluctant to invest in ‘out there’ stuff like the Internet or biotechs,” he said.
“But that has changed over time,” he said. One of the group’s biggest successes is Buyseasons.com, a New Berlin-based internet costume company that will have $170 million in sales this year.
Rusinow said he will tell entrepreneurs at the conference that they need to be extremely well prepared when they pitch their ideas to angel groups.
“Active, sophisticated angels are seeing lots of deals,” he said. “So it’s important that the founders and entrepreneurs have a really good sense of what their business is all about.”
The exception is a scientist who may not have financial acumen. In that case, he or she needs to connect with a business person who can help present an idea to the angel community, Rusinow said.
For potential investors who are not averse to risk, the returns can be handsome, he said. But for every 10 start-ups a group backs, three will fail quickly, three or four others will stall, two will succeed and one, perhaps, will be a home run that will deliver a 10-fold return over five or six years.
He warned, however, that angel investing should only make up a small portion of an individual’s investment portfolio “unless it becomes your day job.”
Even then, he advises against investing more than 25 or 50 percent of an individual’s portfolio in start-ups.
“But don’t do that in the beginning,” he said. “It takes time to figure this out. You want to be able over two to three years to invest in several companies so you don’t have eggs all in one basket. I think it is a good idea to have 8 or 10 companies out there.
“Usually the initial investment is $25,000,” he said. “Take it seriously, go in with an attitude. Create a portfolio, because these things almost never go according to plan and they almost always need follow-on funds.”
He said it’s not unusual to make an investment and then have the company come back in eight months pleading for more.
Though Buyseasons.com was a great success, he said he has plenty of “war stories” in which he got burned.
Rusinow said he’s found that angel investing can go well, regardless of what the stock market is doing.
“Angel deals if they are really good and meant to be will rise even in a tough global macro-economic environment,” he said.
And when there is success, it’s a great feeling, he said. “Especially when the company you're backing makes something, like a medical device, that advances health.”
These days, Rusinow has long since handed off management of Silicon Pastures.
But he’s still actively involved in angel investing and start-ups for a number of Milwaukee and Madison companies. He is lead investor and chairman of ModernMed, a health care company. He holds the same posts with Aurora Spectral Technologies, a tech spinoff with ties to UW-Milwaukee; and he serves on the board of Death’s Door Spirits, which uses Washington Island wheat to make vodka, gin and white whiskey.
“If you are into business models and investing and seeing something grow, it doesn’t get a whole lot better than being an angel investor,” he said.
“Then again, you have to have the constitution to see your money evaporate in a very quick period of time,” he said.