Bob Wood, co-manager for Wisconsin Investment Partners, says investors are looking for companies led by experienced leaders — even if they’ve failed.
“We don’t want just winners,” he said as part of a panel discussion on angel and venture investment held as part of the Early Stage Symposium.
Wood emphasized the importance of learning from failure — an idea backed by Brian Wiegand, a prolific entrepreneur who’s had enormous successes, but has also tasted defeat in the market.
“I’ll be honest, I got cocky after some wins,” Wiegand said. “I sold a company, then sold another company, then sold another company, and then… you lose a little focus, you lose a little bit of the hunger and the drive. It took a failure to refocus that.”
Monika Wingate, co-founder and CEO of social media insights platform DigSite, suggested entrepreneurs start building relationships with investors as early as possible.
“Once I knew the path and I understood the investment milestones… then all of a sudden I had a context with which to evaluate,” she said. “Is Bob’s group the right group to go to; is another group the right one to go to?”
Wisconsin Investment Partners is a network of angel investors based in Madison. The group was started in 2000 and currently has about 100 members. As a network of investors, not a fund, everybody’s in charge of their own decisions, Wood says.
As he explains it, angel investment should come into play “between when you’ve used up all your available resources individually, whether it’s your own money, your own time… then you’re usually looking for other friendly people and family members to try and develop your concept.”
He says most business concepts aren’t fully fleshed out at this point, so angel investors are trusting more in the person than the idea.
Wood says a typical round for Wisconsin Investment Partners is between $250,000 and $500,000. That’s much smaller than the average investment for venture capital funds.
Fred Robertson is operating partner for Baird Capital, the investment arm of Robert W. Baird & Co. He says for its current fund, investments run from about $5 million to $15 million.
As angel and venture investors come in at different times in a startup’s development, they often have varying milestones or criteria for investment. And where angel investors can offer guidance, it’s more often that venture investors will “take a lead role” in the company’s board and direction, Roberson says.
Wood says there needs to be a proven concept above the level of research that’s “near-ready” for the market.
“We want to know that you’ve tested the market and have some form of validation,” he said. “A good validator of course is monetization – people actually paying for it – but that’s a catch-22, how do you get there until you’re funded enough? So it’s not a requirement, but it’s a good validator.”
He said Wisconsin Investment Partners also looks to see if startups can clearly assess what’s missing in their own team.
“We want to make sure you’ve identified what gaps are missing and how you’re going to achieve bringing on the team that’s going to complement your skills,” Wood said. “If you say you can do it all, that’s a red flag.”
On the venture capital side, Robertson says Baird Capital first looks to see if the startup is a good fit with the group’s investment strategy. The second thing — beyond having a great technology idea — is to have solid leadership in place.
Thirdly, he says, Baird Capital looks for “significant market opportunity.”
“If the company’s successful, is it going to be able to grow to the point where there is an exit?” he said. “It is a key criteria on the venture side – we think about that from the beginning.”
This was echoed by Katie Schmitz, senior vice president for Ziegler’s proprietary Investment Team and moderator for the investment panel.
“Timing is very important from the venture perspective as well, because you don’t want to be making an investment thinking that you’re going to have an exit and then getting diluted, let’s say if it’s near the fund’s end of life,” she said. “I think from a venture capital perspective, you definitely want to have a clear eye on the door.”
–By Alex Moe