Seattle angel investor Geoff Entress has backed about 100 startup companies over the years, from social media powerhouses like HootSuite to storage companies like Isilon to software startups like LiquidPlanner. Heck, he’s even an investor and board member at a Redmond soup company, which he jokes not many VCs would have taken a look at.
A former securities lawyer at Perkins Coie who has worked with venture firms such as Madrona Venture Group and Voyager Capital, Entress is perhaps the best known professional angel in the Northwest.
I interviewed Entress as part of the Angel Capital Association NW Regional Meeting on Thursday, asking him questions about what he looks for in an entrepreneur and deals he wished he’d have landed. Most surprisingly, Entress — the vice chairman of the Alliance of Angels — offered some thoughts on how the state should get more involved in helping the startup ecosystem.
Here are some of the highlights:
On what he looks for in an entrepreneur: “It is definitely their passion for what they are doing, and their self confidence in it and that they are being courageous in taking on something challenging. Especially when you are joining the boards, but even when you are an investor, these are long-term relationships. Five plus years, in general. And so you want to be around people that you like being around.”
On deal terms and whether things are overheating: “At the early-stage, deals really aren’t that competitive…. I can’t think of a single time where I’ve had a competitive deal where another angel was bidding against me. Usually, it is tough enough building a syndicate to get enough money into the company, so in general we are participating together. Valuation-wise, we were seeing valuations creep up to 2008, and then things went really bad as everybody knows. In late 2008 and 2009, it was tough to get any deals done. Now, I think we are still seeing pricing down from where it was (pre) 2008, and it’s about the same (compared to 2011). In general, I am seeing series A deals, and I’ve done ones from $1 million valuations up to $3 million or $4 million, and occasionally I will see something higher.”
On getting more angels investing in Seattle: “I am trying to encourage more angels, not less. I’d much rather see more lead angels too because if I could just participate on someone else’s deal, then it is a lot less work for me than leading the deal and being on the board and roping everybody up. I want to help anyone who wants to be a lead investor. At the Alliance of Angels, that has been one of our goals for years, to turn more of our members into active investors, and turn more of our active investors into lead investors because that is the most work of anyone involved in this ecosystem.”
On challenges in the Seattle venture capital community as OVP, Frazier Technology and others wind down: “If I am a pension fund manager back on the East Coast and I am looking at venture firms in Seattle, I am probably going to do one…. Madrona has done a very good job of soaking up a lot of that capital recently.”
On a solution to get more money flowing in Washington state: “One of the easy ways would be to to have the state do more than it does. The Washington State Investment Board has not been supportive of Washington-based VC funds. Oregon actually has been better in backing smaller funds, and up in Canada I see more support up there for different investment entities. There they actually have tax breaks for doing private investments, and we have some here that we may not have to pay capital gains. I think it would be very helpful if (the state) woud do that. If I am a portfolio manager, I should have a certain percentage of my assets in alternatives — whether it is four or five percent of my portfolio. And if I am going to have it in this asset class, it should be in firms that are investing in the local market rather than firms that are investing in say California, which historically they have done.”
On the biggest pet peeve he sees from entrepreneurs: “If I am listening to a pitch, one of the things that turns me off is that we will ask a question … and when someone says: ‘Hold that thought, I will get to that in four slides.’ I’d much rather have them answer my question. I may not remember my question. I want my question answered when I am thinking about it, not four slides from now, when I might have forgotten that. It is probably an indication that they are not going to be that adaptable as an entrepreneur, which is one of the most important characteristics as well is that willingness to change and not stick to a plan if it is not working… That’s one of the sure ways to fail — to stick to a plan if it is not working.”
On valuations in BC vs. Seattle: “If you talk about (Seattle) being capital constrained down here, there is even less sources of capital, it seems, up in Vancouver. I am generally seeing even lower prices there…. The pricing is two thirds maybe what they’d be in Seattle, even. I am seeing lower pricing there, and it is supply and demand. There are less angels, it feels like, that are willing to step in and fill up those rounds.”
On how he views working with VCs: “I’ve had as bad experiences with angel-backed companies as venture companies in terms of being crammed down or washed out. I am happy investing alongside VCs. As I said, some of the most egregious cram downs I’ve seen have actually been other angels, and the VCs are more reputationally-aware than some angels are.”
On a few of the deals he missed: “In 2000, I was working for Madrona and these two young guys, Jeff Fluhr and Eric Baker who were Stanford students were up in town and they had some family relationships here. They were looking for angels, and I had agreed to invest in their company, and it was a series A and I was going to put $50,000 in it. It was a company called Liquid Seats, and Greg Gottesman at Madrona said don’t do that. And I didn’t want to him think that I am not listening to him, or I am not respecting his opinion, so I didn’t do it. And two years later they changed their name to StubHub, and that ended up being a pretty bad miss. The other one was in 2005, one of my wife’s friend, Kathy, had moved up here to Bainbridge Island from Palo Alto with her husband because she thought it would be a nice place to live, and so we were hanging out with her and her husband Chad for a number of months. So, she finally decided they didn’t like it, so they moved back to Palo Alto. And two months later, Chad started YouTube, and I didn’t pursue that one. As a matter of fact, my wife’s sister showed me the site, and I remember thinking late 2005 and she said: ‘Here’s what Chad is up to.’ And I said: ‘What another video site.'” Anyway, I missed that one…. And there is a lot of luck in this too.”
Previously on GeekWire: Seattle angels on what they look for in entrepreneurs, and why startups fail