Decision Vision

Decision Vision Episode 24: Should I Become an Angel Investor? - An Interview with Steve Walden, The Walden Associates

Play Episode Pause Episode

Mute/Unmute Episode Rewind 10 Seconds 1x Fast Forward 30 seconds

00:00 /

RSS Feed

Share

Link

Embed

Should I Become an Angel Investor?

How do I learn to become a successful angel investor? What’s the involvement of an angel investor after writing a check? What distinguishes the angel investor community in Atlanta? Highly regarded angel investor Steve Walden answers these questions and more in a wide ranging conversation with Mike Blake, Host of “Decision Vision.”

 Steve Walden, The Walden Associates

Steve Walden, The Walden Associates, is a long-time (15-plus-year) angel investor.  Prior to that he was a corporate executive in New York with Time Warner, Grey Advertising and IBM. At IBM he was Executive Director of a new division called Prodigy, which foreshadowed the interactive tools we use today.

He was brought to Atlanta by BellSouth (now AT&T) as a vice president, where he helped launch BellSouth.net (their interactive division) and other businesses.

At about the same time he also had a small interest in a startup company called Netsurfer. The company was failing and with the overstated confidence of a New Yorker he stepped in as CEO.  Fortunately, the company had a decent exit and Steve became hooked on the startup world.  Since then he has been the CEO or CFO of three other companies before turning angel investor, where he has supported many other startups.

Steve started as a journalist after training at Columbia and the University of Pennsylvania and practiced that profession early in his career.

Michael Blake, Brady Ware & Company

Michael Blake is Host of the “Decision Vision” podcast series and a Director of Brady Ware & Company. Mike specializes in the valuation of intellectual property-driven firms, such as software firms, aerospace firms and professional services firms, most frequently in the capacity as a transaction advisor, helping clients obtain great outcomes from complex transaction opportunities. He is also a specialist in the appraisal of intellectual properties as stand-alone assets, such as software, trade secrets, and patents.

Mike has been a full-time business appraiser for 13 years with public accounting firms, boutique business appraisal firms, and an owner of his own firm. Prior to that, he spent 8 years in venture capital and investment banking, including transactions in the U.S., Israel, Russia, Ukraine, and Belarus.

Brady Ware & Company

Brady Ware & Company is a regional full-service accounting and advisory firm which helps businesses and entrepreneurs make visions a reality. Brady Ware services clients nationally from its offices in Alpharetta, GA; Columbus and Dayton, OH; and Richmond, IN. The firm is growth minded, committed to the regions in which they operate, and most importantly, they make significant investments in their people and service offerings to meet the changing financial needs of those they are privileged to serve. The firm is dedicated to providing results that make a difference for its clients.

Decision Vision Podcast Series

“Decision Vision” is a podcast covering topics and issues facing small business owners and connecting them with solutions from leading experts. This series is presented by Brady Ware & Company. If you are a decision maker for a small business, we’d love to hear from you. Contact us at decisionvision@bradyware.com and make sure to listen to every Thursday to the “Decision Vision” podcast. Past episodes of “Decision Vision” can be found here. “Decision Vision” is produced and broadcast by the North Fulton studio of Business RadioX®.

Visit Brady Ware & Company on social media:

LinkedIn:  https://www.linkedin.com/company/brady-ware/

Facebook: https://www.facebook.com/bradywareCPAs/

Twitter: https://twitter.com/BradyWare

Instagram: https://www.instagram.com/bradywarecompany/

Show Transcript

Intro: [00:00:02] Welcome to the Decision Vision, a podcast series focusing on critical business decisions, brought to you by Brady Ware & Company. Brady Ware is a regional, full-service, accounting and advisory firm that helps businesses and entrepreneurs make vision a reality.

Michael Blake: [00:00:20] And welcome to Decision Vision, a podcast giving you, the listener, clear vision to make great decisions. In each episode, we discuss the process of decision making on a different topic. Rather than making recommendations because everyone’s circumstances are different, we talk to subject matter experts about how they would recommend thinking about that decision.

Michael Blake: [00:00:38] My name is Mike Blake, and I’m your host for today’s program. I’m a Director at Brady Ware & Company, a full-service accounting firm based in Dayton, Ohio, with offices in Dayton; Columbus, Ohio; Richmond, Indiana; and Alpharetta, Georgia, which is where we are recording today. Brady Ware is sponsoring this podcast. If you like this podcast, please subscribe on your favorite podcast aggregator. And please also consider leaving a review of the podcast as well.

Michael Blake: [00:01:02] Our topic today is Should I Become an Angel Investor? And those of you who’ve listen to the program for a while know my background, know that I’m connected with the startup world. In some way, I’ve been for really my entire career. And the angel investing topic, I think, is of particular interest because as a person that’s that’s traveled a lot, has lived abroad, one thing that I think separates our society apart is this notion of entrepreneur as folk hero. And even if you kind of translate entrepreneur in other languages, and I’m not fluent in 180 of them, but the way the words are even constructed is there’s almost a certain amount of suspicion or confusion about somebody that’s an entrepreneur, right. It’s an undertaking. And even the word “under” has a somewhat negative connotation.

Michael Blake: [00:02:03] But the United States is a little bit different. Now, I’m not trying to go off Fox News Channel here, but the United States is different in the fact that we elevate entrepreneurs to a folk hero status. And one of the things that makes that go is a community of angel investors. And the word “angel” I think is very apt, except for the people that perhaps get turned down for funding by them. But an angel investor is somebody that is willing to put money pretty much everywhere, everyone else’s fears to tread, so to speak.

Michael Blake: [00:02:38] And they bridge that gap between friends, family, and fools. Some will tell you themselves, maybe they fall into the fools category. Sometimes, they are friends and family. But they bridge that gap from from money that is not financially motivated but just really goodwill-based capital and just wants to see you succeed on a personal level. And the wise guys is the institutional investor, a series A venture capitalist, and so forth that let’s face it, at the end of the day, they are in it for the money. If they’re not in it for the money, they aren’t in it very long.

Michael Blake: [00:03:15] And angel investors kind of fill that very important gap. And you’re probably more familiar with them by looking at watching Shark Tank, a show I’ve never actually seen, by the way. But I know how it works. And Mark Cuban and those folks position themselves as angel investors or fashion. And I suppose that’s fair. But the vast majority of angel investors are frankly very anonymous. Very few of them have websites, not active all that much in social media. That’s not in California.

Michael Blake: [00:03:44] But most of them really are. You probably have sat next to an angel investor at a Starbucks and never knew it. You’ve probably been behind one in line at the grocery store. You’ve probably been sitting next to one in the restaurant where half-a-million-dollar deal is being talked about. You probably never knew about it. And especially if you’re in Atlanta, where we very much have a low key, sort of, non-PR mentality for the most part.

Michael Blake: [00:04:09] And so, if you don’t know that space, if you haven’t sort of invested a lot of time as I have to kind of burrow in, you may not know a lot about it. So, I’m very excited about this particular program because I think it’s going to be an opportunity to shine a lot of light about what it means to be an angel investor. I think the world always can use more angel investors. And if you’re a high net worth individual, and you’re thinking about it, it’s probably very daunting because where do you start? It’s high risk. Are you just going to be a moron and lose all of your money, and you’re going to feel like you never should have gotten into it in the first place? Or is there a method to the madness where somebody can be successful?

Michael Blake: [00:04:48] And I’m not qualified to tell you that, but I have somebody across the table from me who is. And it is my absolute pleasure to introduce my friend and our guest, Steve Walden today of Walden Associates, a seed stage investment and entrepreneurial advisory firm. Steve is a longtime 15-plus year angel investor. And prior to that, he was a corporate executive in New York with Time Warner, Gray Advertising, and a little technology company called IBM.

Michael Blake: [00:05:17] At IBM, he is executive director of a new division they called Prodigy, which foreshadowed the interactive tools that we now use. He was brought to Atlanta by BellSouth, now AT&T, as Vice President where he helped launch BellSouth.net, their interactive division and other businesses. At about the same time, he had a small interest in a startup company called Net Surfer. The company was failing, and with the overstated confidence of a New Yorker, he stepped in as CEO. And by way, this is just in, he actually disclosed. He is actually a native Bostonian, but we’ll let him define himself however he wants.

Michael Blake: [00:05:50] Fortunately, the company had a decent exit, and Steve became hooked on the startup world. That is sort of the way it works. Since then, he has been the Chief Executive Officer, or Chief Financial Officer, or maybe both of three other companies before turning angel investor where he has supported many startups. Steve started as a journalist after training at Columbia and the University of Pennsylvania and practiced that early in his career. And we’ll talk a little bit about how that led to him becoming an angel investor and him succeeding, i.e. surviving for a long time as an angel investor. I think that’s a good definition of success. Steve, welcome to the program. Thanks so much for coming on.

Steve Walden: [00:06:28] Thank you, Mike. It’s a pleasure to be here.

Michael Blake: [00:06:30] So, with most my programs, I like to start with establishing a common vocabulary because we can very quickly get into all kinds of jargon that’s almost a separate language, and we can lose people very quickly. So, we try not to do that. The first question I want to kind of put out there is most people have heard of venture capitalists, not as many people have heard of angel investors. And I think those who have think that they’re the same thing. But there’s a little bit of a difference between the two, isn’t there?

Steve Walden: [00:06:58] There’s a huge difference between VCs and angel investors. For one thing, probably the most fundamental difference is the way they’re structured. VCs are limited partnerships that are purely financially motivated. They have usually limited partners who who provide the money for the group, so that the people who actually do the investing may not be the same as the ones who provided the money for it. And that means the people who are doing the investing have a responsibility to third parties to produce results. And anything that is going to denigrate that ability is something they are not interested in.

Michael Blake: [00:07:52] And so, in effect, a venture capitalist as a fund manager, right. Definitely not that much different from a hedge fund or even an index fund, right?

Steve Walden: [00:08:01] Exactly. He has limited partners who are his bosses.

Michael Blake: [00:08:06] Now, one of the things that that strikes me about venture capital, it’s something I’ve studied a lot in the last two years, is because of the nature of venture capital, right, venture capital funds typically have an expiration date, right?

Steve Walden: [00:08:22] Right.

Michael Blake: [00:08:22] They’ve got to return capital up to 10 years and often more quickly than when that money was actually put in. And that can kind of limit the kinds of deals that venture capitalists can do and how they manage it. At least, drive how they manage it, right?

Steve Walden: [00:08:36] Yeah, exactly. They’re under a tremendous amount of pressure, not just within that timeframe, but because they know they’re going to be doing a second fund at some point, usually, before the first one is completely over. And if they have lack luster results, it’s going to be very hard for them to stay in business.

Michael Blake: [00:08:58] Yes, it’s hard to go out to the market saying, “We’ve been substandard or mediocre the first time.”

Steve Walden: [00:09:03] Yes, but give us more money.

Michael Blake: [00:09:05] But give us more money, right. Especially when there’s no shortage of folks that are looking for money. But we’ll come back a little bit to that. So, you have a background as a journalist. And as I found out actually in radio, to some extent, which is why I have this natural sort of smooth jazz radio voice, how does that help you being be an angel investor, or are there even parallels between journalism and the practice of angel investing?

Steve Walden: [00:09:35] Well, there are certainly behavioral similarities. I’ve learned to listen hard, to ask a lot of questions, and to be pretty skeptical about the results, whatever they may be of the questions. And so, when I go into “interview” an entrepreneur, I pretty much know what I want to ask him or her. And I know the kind of answer that I will accept and will be prepared to bore in and pretty hard with a second question,  I don’t get the kind of answer that’s successful.

Michael Blake: [00:10:11] So that that follow up question, right. And do you find that list of questions has pretty much become standard over the years?

Steve Walden: [00:10:18] Well, yeah. I think as I get older and lazier, I don’t try to rethink the whole thing every time. So, there are certain answers I’m looking to obtain. And if I don’t get them, I’ll either cut the interview short or, mentally, to cut it short.

Michael Blake: [00:10:38] Okay, right. One way or the other.

Steve Walden: [00:10:40] Yeah.

Michael Blake: [00:10:40] You can check out physically or mentally that at some point, this is over. We’re done. We’re done here. So, can you be an angel investor part time and be successful, right? You’ve gotten to a point, I think, correct me if I’m wrong, but I think it’s fair to characterize you as a full-time professional angel investor. Can you do that successfully part time? Can you do it as a hobby, or do you have to just decide this is going to be your job?

Steve Walden: [00:11:07] Well, it depends upon the success or how you define success. There are a lot of angel investment groups to which you can be a member, and let others take the heavy lifting for due diligence and some of the other things that have to happen, or you can decide, just stay and do it all yourself. And that latter function is a lot more difficult and requires a lot more time.

Michael Blake: [00:11:40] So, I want to come back to that because I know you’ve been very active in angel groups around town. So, I think that’s an important resource. Where do investment opportunities come from? As I mentioned in the introduction, you guys, as a group, except for the California folks, are pretty low key, right? You don’t have a store front. Most of you don’t really even have a website, right. And I think that’s by design, but you can tell me if I’m wrong. So, how do people know how to find you? There’s no Walden Associates in the Yellow Pages or anything. So, how do these deals find you?

Steve Walden: [00:12:18] It’s all through networking. And the converse of the question you ask is, how do I find companies? And you don’t just walk down the street and, actually, I was going to say, have people hand you cards but these days, you do find people who do that. But by and large, what you do is you become embedded in the community, and people know you, and you will hear about good companies. And if you’re not too late, you will get in and try to get a piece of them.

Michael Blake: [00:12:54] Now, that’s an important point. I want to follow up on that because, I think, even though we’re not really directing this at fundraisers, I’ve got to take the opportunity. If you’re looking for funding, or even if you want to be a successful angel investor, I think there’s a temptation to say, “Well, I’ve got this pile of money that I’m sitting on,” right. Of course, people are going to come looking for it, right. And to a certain extent, that may be true, but if it’s not the right people that it’s not a very productive use of your time, right?

Steve Walden: [00:13:28] On both sides.

Michael Blake: [00:13:28] Right.

Steve Walden: [00:13:29] There are some angel investors and VCs who actually provide value to the business. And if you get in with them, they can find you the next level of funding. They will have marketing contacts. They will also help you with an exit. And similarly, if you stay active in the community, you’ll get referrals from companies that are looking for money in however worth putting money into.

Michael Blake: [00:14:03] And so, in that search and one of the keys them to being an angel investor, I think, one bullet point here is you have to be willing to ping actively. It’s really like selling anything else, but unless you’re in finance understanding the notion that you have to sell money is odd. But in many ways, selling money is one of the most competitive ideas out there.

Steve Walden: [00:14:28] It is, it is. And it’s just becoming more difficult right now because the nature of the economy is such that there are a lot of “angel investors” who are throwing money around, and that has raised valuation. So, that funding a company that is worth investing in at a decent valuation has become exceedingly difficult.

Michael Blake: [00:14:55] Oh, good. So, I’m glad you mentioned that. So, I’m going to go off the script a little bit because I think from the outside, you look at angel investing, and the end game is to have the next Facebook, right, or the have the next Uber, or to have the next whatever big exit that there’s going to be. Obviously, those are exceptions to the rule, right? But investing just for growth and growth alone, that’s probably not a winning strategy. There’s got to be a value in there, right?

Steve Walden: [00:15:26] Well, there are a lot of motivations for wanting to be in this. And certainly, you want your investment part to be to return more than you put into it. But there are a lot of other motivations as well. And most angel investors like to work with startup companies. Many have been entrepreneurs themselves. And this is sort of heresy, I’m less eager to or less expectant of showing huge profits than wanting to break even and help some entrepreneurs along the way. But then, I’m at a particular stage in my career, which is unusual for some of them and certainly unusual for a VC.

Michael Blake: [00:16:15] Right. And I think I think you’ve earned the luxury of having that choice because of the success you’ve had earlier. I think if you start out as an angel investor, unless you’re sitting on a very large pile of cash, you probably do need to have some financial success, so you can evolve into a non-financial goal set. Is that fair?

Steve Walden: [00:16:33] That’s absolutely true.

Michael Blake: [00:16:34] And getting back to value, value is important, not so much that — in my view, not because you might get ripped off or overpay but the higher the entry value, the higher the burden it is for the company to generate a return on the investment. The exit just — and so, for every dollar of higher entry valuation, the exit has to be $10 higher, right, to generate that kind of return. That’s my value, I think, for angles is so important, that multiplier effect.

Steve Walden: [00:17:07] Although, I will also say that the if there’s going to be a decent exit, I’m certainly willing to give a little bit of the high end away, but not for companies that are pre-profit and are still asking for $20 million valuation.

Michael Blake: [00:17:29] Okay. And, hopefully, I think we’ll come back to that. But going back to kind of the opportunities search, and you talked about it comes through your networks, and that you’re involved in angel groups. So, how many deals do you think you see in a particular, call it a month?

Steve Walden: [00:17:48] Well, it depends on what you see, What do I mean by see? I’m aware of maybe 30 per month. And of that 30, I will actively want to “see” maybe 6 or 10. And the other two-thirds, I just really don’t want to get deep into.

Michael Blake: [00:18:12] And see, I’m guessing as you’d like to see maybe an executive summary, perhaps meet the management team for a brief presentation or something like that, right?

Steve Walden: [00:18:21] Yeah, exactly.

Michael Blake: [00:18:22] And so, of that population in a given year, how many commitments, investment commitments do you think you’d make?

Steve Walden: [00:18:34] That is a very difficult answer for me to give you because it varies a lot. And, right now, please forgive me, entrepreneurs, but the quality of deals that I’m seeing and what they’re expecting is less amenable to want to invest in. What we need is – forgive this also – is a good recession to bring down the valuations of some of the it. I know, Mike, you do valuation as well. And the pre-revenue company that’s asking for $20 million as valuation is just not going to get invested no matter how good they are

Michael Blake: [00:19:14] At least, not in our market.

Steve Walden: [00:19:16] I was going to say no, not on the East Coast.

Michael Blake: [00:19:18] Yeah, yeah, yeah. We could have a whole different podcast of East versus West. You and I have had that conversation, but we need to focus on on this particular topic. But it’s fair to say that if you’re looking at 300, if you are aware 300 plus deals a year, and maybe you look carefully at a hundred, right, a realistic number of commitments in a given year can’t be more than two or three, right?

Steve Walden: [00:19:43] Correct.

Michael Blake: [00:19:43] Right. And it’s not just financial capacity, but I know you as a person, you’re not really, “Here’s a check. I’ll come see you in five years,” kind of guy, right?

Steve Walden: [00:19:55] That’s correct.

Michael Blake: [00:19:56] So, how involved do you get once you kind of write that check? And I know there’s a spectrum, but we have you in front of a microphone. So, for you, personally, Steve Walden, right, what kind of involvement do you have with the company after you write that check?

Steve Walden: [00:20:11] It depends on a lot of factors. Ideally, I’d like to be on the board or, at least, on the advisory board. And I’d like to be in their key meetings, and I’d like to be able to help with some advice, particularly in marketing, but as larger sources of funds share this market with us, I will happily take a side seat and let the larger funds become involved in that.

Michael Blake: [00:20:46] Okay.

Steve Walden: [00:20:47] For instance, the one of the companies that I recently exited from was called [Predictale]. And one of the reasons I like Predictale initially, not only did it have a great CEO, but it had a VC that came in right after us. And the VCs took over the board seats and took over the ability to make some of the larger decisions. And I was perfectly happy being in the lee of the VC and seeing this become a successful exit.

Michael Blake: [00:21:20] Now, essentially, you say that because I think the mindset about that has evolved over the last 10 years. I think 10 years ago, angel investors are much more wary about VC involvement. I think they’re aware that they were just sort of take over and try to be private equity as opposed to VC.

Steve Walden: [00:21:40] Yeah,.

Michael Blake: [00:21:40] I think they were worried about, frankly, being crammed down, which that’s a term that just means that you either continue investing or become deluded. But it sounds like, I think, I sense in the community, not just from you, but others, that thinking has evolved now that angels are more open to partnerships with VCs and see some value there.

Steve Walden: [00:22:02] Well, certainly in the Southeast, we’re kind of a friendly club, and nobody wants to be the skunk at that party. And so, I know many of the VCs, and many of them know me, and none of us wants to do anything that will hurt the other and jeopardize future deals. So, on the other hand, I would be very wary about somebody coming in from the West Coast and saying, “I have lots of money and let me get involved in this company.”

Michael Blake: [00:22:41] And why is that?

Steve Walden: [00:22:44] Well, they would cram me down. They would do all sorts of financial stuff. And some of it is, I hate to use the word unethical but, not by our standards, ethical.

Michael Blake: [00:23:00] They still like to throw elbows. How about that? They definitely will throw some elbows.

Steve Walden: [00:23:03] Yeah. And they don’t have to live with me after that; whereas, the local VCs do.

Michael Blake: [00:23:09] Interesting. And, also, I think because some of the California folks have more money to begin with, right, it is much more likely they’ll come in and say, “We will put $20 million in this. And you, Steve, would put in – throwing out a number – quarter of a million dollars,” right, what are you going to do, right? All of a sudden, you’re not that different from holding shares of Apple at that point if somebody already invested, right?

Steve Walden: [00:23:35] It’s exactly.

Michael Blake: [00:23:35] So, who needs it?

Steve Walden: [00:23:36] Right.

Michael Blake: [00:23:37] So, let’s say I’m thinking about becoming an angel investor, and presumably I’ve done well financially. I don’t think this is something that you should do if you’re not financially well off. There are even some regulations that if they don’t make it outright illegal, they strongly discourage it. I am thinking how I can ask this question without being overly intrusive. Among your peers, yeah, among your peers, what do you think the net worth level kind of gets to before they realistically start thinking about themselves becoming active angel investors?

Steve Walden: [00:24:12] Well, there are some regulations that you have to sign that you have a net worth over — and I’m trying to think of it. It recently changed.

Michael Blake: [00:24:21] Yes.

Steve Walden: [00:24:23] Is it $2 million?

Michael Blake: [00:24:24] No.

Michael Blake: [00:24:24] No. Well, there are two limits. One is net worth and the other is income. And it has to be either or. But I think what it comes down to is what else you’re doing. To me, my angel investing is almost a hobby, and I have given more of my money to more conventional investments. And I’ve others, including those who are advising me on the other investments, that this is my sandbox. I intend to put money into nonconventional companies, and I expect that much of that is going to be lost. Although one or two big hits will completely erase those losses. And so, I guess, what I’m saying is the long answer to your question is you shouldn’t invest more than you can afford to lose.

Michael Blake: [00:25:28] So, in that respect, really not that different from Vegas rules?

Steve Walden: [00:25:33] I like to think it’s a little bit better, but probably not.

Michael Blake: [00:25:37] Well, maybe not. I think that it is better, but at the end of the day, I think that if you — personally, I think it is equally unwise to invest your mortgage and angel investment as it is to invest in a crap table.

Steve Walden: [00:25:54] I would agree.

Michael Blake: [00:25:56] Okay. That’s what I mean by Vegas rules.

Steve Walden: [00:25:58] Yeah.

Michael Blake: [00:25:58] So, while you’re answering that question, I quickly looked it up. So, the rule 501 by the FCC says that to be an accredited investor,a n individual has to have a $200,000 annual income or a household of $300,000 and — sorry. Or an individual or individual joint net worth of a million dollars, excluding your primary residence.

Steve Walden: [00:26:22] Yeah.

Michael Blake: [00:26:23] So, it’s actually less than I thought.

Steve Walden: [00:26:24] Yeah, it is less than I thought too. But what you said is it’s an or, so that you really — if you have a little money tucked away, and you’re not making a huge income right now or vice versa, you can still be an investor. And I think the key is to realize not to put your last nickel into it because it is a risky investment. And if you invest the way I do, which is companies you know, companies you’ve done your own due diligence on, you have a little bit better return than the average investor. But it’s not good enough that I would risk my future or my family’s future on that. But it sure is a lot more fun. It’s partly investment and and partly entertainment.

Michael Blake: [00:27:19] So, talk a little about that. What do you find entertaining or stimulating about it?

Steve Walden: [00:27:23] The fact that I meet a ton of interesting entrepreneurs, some of which have become friends. And even if I don’t invest, I’ve learned from them. And hopefully, the advice that I provide is as valuable as the money I can provide. And hopefully, mutually, I can learn from them and they can learn from me. I get a tremendous amount of pleasure in knowing I’ve helped some good entrepreneurs with some great ideas.

Michael Blake: [00:28:03] So, moving a little bit, shifting topics or gears a little bit to bandwidth, angel investing is a time-consuming exercise. But, also, we both know that portfolio theory suggests that if you can build a portfolio of any investment, right, you have a chance to generate a higher risk adjusted return. Is building a portfolio of angel investments a realistic exercise or a realistic goal?

Steve Walden: [00:28:35] There are lots of ways you can invest. You can invest in part of an investment group. There are several good ones in town. Well, that’s becoming better again. You can do it as there are even some funds that do this. So, that I think that having a portfolio is a good thing to do from a risk protection perspective, but you don’t have to go out and do your own due diligence to every company you’re looking at.

Michael Blake: [00:29:10] And that cuts down on transaction costs, too, right, because-

Steve Walden: [00:29:13] Yeah, exactly.

Michael Blake: [00:29:14] …  that in itself can be very expensive. It is not hard to rack up $30,000 of legal accounting expertise fees, right?

Steve Walden: [00:29:23] Yeah, exactly. And most investment groups have a lawyer that they have, if not on staff, which is probably the wrong word, with whom they do business regularly, who adjusts what he charges for either out of friendship or because he has other goals.

Michael Blake: [00:29:43] Yeah, okay. So, do you remember the first angel deal you ever did?

Steve Walden: [00:29:49] Probably the first one I ever did with a company I ended up working for or running. It was-

Michael Blake: [00:29:55] That’s an interesting way to get a job.

Steve Walden: [00:29:56] Yeah. Well, actually, believe it or not, there are some angels who invest with the goal of becoming the CFO or taking some role within the company and for salary. I had no such goal. I was, at the time, working for BellSouth, kind of fat and happy on a corporate income. And there was a company that I had come to that I put a little bit of money into because I kind of liked them, and I liked what they were doing, and I like the, then, CEO. And I put money into the company just down the side. And the company was reaching the point of no return or diminishment to nonexistence. And so, I actually left my day job to take over as CEO.

Michael Blake: [00:30:49] Well, talk about doubling down.

Steve Walden: [00:30:51] I know.

Michael Blake: [00:30:51] You really believed in that company.

Steve Walden: [00:30:53] I did, I did. And fortunately, it was a semi good choice. The company never really turned huge amounts. It was never a 20x return. But I did get all my money back and had the entertainment, if I can use that word, of being involved in it. And it was such a good experience to do that that I said, “Gosh, I’m never going to go back to the corporate world again. In fact, this sure beats working.”

Michael Blake: [00:31:28] Is that the first company you ever ran as sort of the head honcho?

Steve Walden: [00:31:34] Yes, it was. And there I was, fresh from New York. I never run a company as the CEO before. And so, there, I was taking double risks, but I had gone to business school in addition to some other things, and figured I could make some decent decisions. And whether I had made decent decisions or not, I was, at least, lucky, which is probably the most important part of that.

Michael Blake: [00:32:03] Well, luck is not a business plan, but if it happens, well, we’ll take it.

Steve Walden: [00:32:06] We’ll take it every time.

Michael Blake: [00:32:09] So, is it fair to say that not every investment you’ve made has had a happy conclusion?

Steve Walden: [00:32:16] That’s correct. All of the papers and books say that probably one in eight is doing okay. I’ve got a little bit better track record than that. And I will be the first to say a lot of that is luck, but I think I also take more care for about what I invest in. And I’ve got a bunch of rules that I follow. And every time I’ve broken them, by the way, I’ve ended up losing money.

Michael Blake: [00:32:56] That’ll learn you.

Steve Walden: [00:32:57] That’ll earn me, right.

Michael Blake: [00:32:59] So, I’m curious. One thing I’ve observed about angel investors and what I advise people that are thinking about getting into that is investing in businesses that you really understand well on the way in. So, a frequent complaint about Atlanta is, why don’t we have kind of the e-commerce California kind of startups? And the reason why is because nobody here has come out of that world, right?

Steve Walden: [00:33:26] That’s correct. And we also don’t have many consumer companies that get funding here, a whole lot of limitations and a bunch of categories.

Michael Blake: [00:33:36] Yeah. But the things we do do well here in Atlanta – information security, payments processing – if you have enterprise software, if you have a good deal, you can get funded.

Steve Walden: [00:33:45] You absolutely can. And I’ve had entrepreneurs complain to me about nobody has any money here in Atlanta. And my answer to them is much like the one you said, if you have a good deal, it’ll get funded. Even if it’s not in the category that’s normally popular in Atlanta, you will get it funded if you can prove that or demonstrate that it’s a good investment.

Michael Blake: [00:34:10] So, Atlanta has money, just maybe not money for you.

Steve Walden: [00:34:13] Yeah, exactly. I don’t know how to say it, but it’s not me, it’s you.

Michael Blake: [00:34:19] So, when a deal goes bad, what’s that like as an angel investor? How do you react? How do you then have the confidence to not sort of take all your money off the table, and hide, and go back into investing in index funds, real estate, gold, whatever?

Steve Walden: [00:34:37] You actually asked several questions. Probably the most important is how you react to it. If you look at it as a business, and you expect to get five absolute flops for everyone that comes in well, then every time you fail, you can say, “Well, that’s one less I have to do before I get to my five.”

Michael Blake: [00:35:04] Next one up.

Steve Walden: [00:35:05] Right. There are degrees of failure. A one-to-one payback is sort of a failure, but a lot of people wouldn’t consider that. So, the object is to get the ratios working for you, get six or eight companies invested in, and hope that with your advice and your very wise selections, you’ll get money back and then some.

Michael Blake: [00:35:41] And kind of what I’m getting to is we’re both aware of the stories of novice investors that invest. Maybe they’ve invest a relatively modest amount. Call it $25,000 or $50,000, right. And entrepreneurs will tell you that they’re often the highest maintenance, right if they’re novice investors, Maybe it’s not fair to categorize that by the amount, but assume if they’re novice investors, right, they’ll be our trying to reach the CEO every week, two or three times every week. “What’s happening with my money?” which is is distracting, obviously. And if you have that kind of mindset, it probably means you’re really not ready to take that kind of risk. Is that a fair characterization?

Steve Walden: [00:36:31] Probably.

Michael Blake: [00:36:31] Yeah.

Steve Walden: [00:36:33] On the flip of that, however, is if you’re able to offer good advice, and you call the entrepreneur on a daily basis, and offer good advice each time because you’ve been there, done that, then the entrepreneurs should take your call happily.

Michael Blake: [00:36:51] And I know with you, one of the things that you prize very, very highly is coachability, right. Somebody who’s willing to listen, doesn’t think they have all the answers. When we’re, certainly, looking for money, we want to present ourselves a certain way. We want to present ourselves as having all the answers when we pitch. But in fact, that can actually be a counterproductive posture in the angel world, can’t that?

Steve Walden: [00:37:17] Absolutely. And in fact, I have a friend and colleague who was about to invest in a company, and he asked me to interview the CEO. And after 15 minutes with the CEO, I said, “What attracted you to him was that he seems to have all the answers. That, to me, is a disincentive to invest in him.” And the guy walked away from the investment. At least, I hope. We haven’t heard the final results yet, but I hope he has.

Michael Blake: [00:37:57] I’m sure he took your advice. We could be here a much longer time, but I want to be respectful of your time. Just a couple of last questions on the way out. One is, if somebody now has listened this, we haven’t scared them off, and I hope we’ve scared off a lot of people-

Steve Walden: [00:38:16] Sure.

Michael Blake: [00:38:16] … who think that’s how — but there’ll be a few that. “I’m in,” where can they go to learn more about this?

Steve Walden: [00:38:25] Charlie Paparelli, who is a long-term angel investor who talks to other angel investors too says the best way to learn how to be an angel investor is to write a check.

Michael Blake: [00:38:42] It sounds like Charlie.

Steve Walden: [00:38:43] Yeah, it does sound like Charlie. And there’s a lot of truth to that. There’s a lot of books that you can read about success rates and things to look for. But at the end of the day, jump into the fray, do it with a small amount of money, you can do it for $5000 or $10,000, and learn every day from what the company is doing and what your fellow investors are doing. Hopefully, you can join a group that does a lot of investing and can coach you a little bit on, not only the investment, but how to act as a share owner in a company. And as you get better at it, you’ll probably do much better with your second, and third, and fourth investments.

Michael Blake: [00:39:29] And just as a sneak preview to our listeners, Charlie Paparelli is actually recording a podcast with us next month. So, he’ll be on. And the topic will be, Should I Raise Angel Capital? And that’ll be published some time in August or early September.

Steve Walden: [00:39:43] Good.

Michael Blake: [00:39:44] So, I’m a huge fan of Charlie’s, and I love his blog too. It’s one of the few that I make sure that I do not mess up.

Steve Walden: [00:39:51] Yeah, I agree.

Michael Blake: [00:39:53] If people want to learn more about angel investing, can they contact you? Would you be willing to take a call or receive an email?

Steve Walden: [00:39:59] Sure, I’d be happy to. I’m probably a lot more reachable by email than by phone calls. You can-

Michael Blake: [00:40:09] So, what’s your email address?

Steve Walden: [00:40:10] For this, it would be swalden@thewaldenassociates.com.

Michael Blake: [00:40:20] Okay. So, that will do it. That’s going to wrap it up for today’s program. I’d like to thank Steve Walden so much for joining us and sharing his expertise with us today. We’ll be exploring a new topic each week, so please tune in, so that when you’re faced with your next business decision, you have clear vision when making it. If you enjoy this podcast, please consider leaving a review with your favorite podcast aggregator. It helps people find us, so that we can help them. Once again, this is Mike Blake. Our sponsor is Brady Ware & Company. And this has been the Decision Vision Podcast.