Dave de Csepel With TCA Venture Group

Intro: Broadcasting live from the Business RadioX studios in Pasadena, California. This is Pasadena Business Radio. And now here’s your host.

Lee Kantor: Lee Kantor here, another episode of Pasadena Business Radio. And this is going to be a good one. This episode of Pasadena Business Radio is brought to you by Xavier Inguanzo, realtor, Berkshire Hathaway HomeServices California Properties. Today on the show, we have Dave de Csepel. He is with Tech Coast Angels Venture Group. Welcome.

Dave de Csepel: Thank you Lee, it’s good to be here.

Lee Kantor: Well, I am excited to learn what you’re up to. Tell us about Tech Coast Angels. How you serving folks?

Dave de Csepel: Sure. Well, tech Angels, we started as individual angel groups back in 1997, in Southern California, here there were three angel groups which started from MIT. Professors actually were milling around and trying to figure out the best way to invest in startups and how to analyze those startups and make smart investments. And so investment groups started in Irvine, California, as well as the west side of LA and in Westwood, near UCLA and Santa Monica, and then also right here in Pasadena. And we we grew early. It started with about a dozen members for each of those chapters. And, and today we have about 120 members for each of these chapters, still trying to make smart investments, but having a much wider funnel now to attract a lot of founders. And if it makes sense, we are quick to pull the trigger and quick to invest and mentor along the way.

Lee Kantor: Now, do you mind educating our listeners a little bit about maybe the differences between angels versus venture capital or private equity or, you know, incubators, accelerators. It seems like there are so many players in this ecosystem. So can you share a little bit about what makes angels maybe different than the others?

Dave de Csepel: Oh, sure. As angels, we we and you’re right to say ecosystem. We’re all part of a larger ecosystem. Typically when when founders come across an idea or they try to develop their idea before getting it out the door, they need a little bit of funding to help them, to help them along, to help them kind of get their legs and to get their prototype out the door. And so typically that might involve getting some family or friends to, to give to their cause. And of course, at this point, that’s the most risky money right now because we don’t know if that’s going to make it. But if they show some progress and they start to actually prove their most viable, viable product. So that would be your MVP, as we say in our circles, if they get that out the door and they start making a little bit of money testing it in a pilot program. Typically, an angel group will come along and take an interest in investing to get it to the next level. Typically, the valuations that those founders would then put on their companies would be in the range of about 4 million to about 1520 million.

Dave de Csepel: That’s all negotiable with the angel groups that they speak to. If that then becomes successful and they scale up to several different markets or depending on how they’re laid out, we would then make introductions to venture groups for venture capital to get involved in. Venture capital will come along. You know, the $20 million valuation or more. And typically those raises would be in the neighborhood of about 3 million to 6 million. Backing up the angel groups. We would be looking at rounds of about 500,000, up to about 2 million. That’s kind of the center of what an angel or a seed round would entail. If venture groups are then successful. Sometimes that might, um, that might elevate itself above 40 or 50 million to a private equity group might come in, and then they would be on their way to perhaps getting acquired or having an IPO, and that would be the exit of that. Or they would just grow and grow like like Uber and Facebook has. So there are lots of examples out there, but it’s an exciting world to be in, and I’m glad that I’m a part of it now.

Lee Kantor: Can you share a little bit about why, the reason why somebody would kind of work with an angel group rather than using a crowdfunding app, or like you said, just keep going to their friends and family or bootstrapping based on existing sales in order to kind of launch and to test the concept.

Dave de Csepel: Oh good question. Um, from a founder’s perspective, you would want to you would want to present yourself to an angel group so you could get strategic money in again out of just an individual group. It’s 120 members. Within that there are accountants. Uh, there are IP attorneys. I’m just throwing out examples. We’re here in Pasadena. I’m located right next to Caltech, so there’s quite a bit of brilliant engineers who are also being in Pasadena. There’s 3000 employees here at Jet Propulsion Labs, and so our members include just brilliant engineers and and software folks that can really help a company achieve the next level. So it’s not, you know, our our slogan at the Pasadena Angels, it’s more than just the money. And that really that holds true. So that’s an attractive element for a founder to get involved with. Investment from our group, much like the other TCA groups, um, have expertise in life sciences and medical devices and such. So we’re attractive again as a strategic investment on that front. And plus, as I said earlier, we can then if successful, we can then make introductions to venture capital, which will help them along the way. Uh, from an investor’s point of view, it’s great to not just make investments as if you’re in a silo. It’s great to, uh, to look to the chair next to you and learn interesting things about IP, whether it’s strong or not, or whether the accounting is strong or whether the engineering is solid. So what we like to know that we don’t know everything, but we count on our members to fill in the gaps. And so we’re not venture capital and we’re not we’re not paid to analyze these deals. However, we do involve other volunteers to kind of help suss out what’s a good investment and what’s not a good investment.

Lee Kantor: Now, you mentioned, um, I guess, something some people call smart money and dumb money. Um, and like you said, all money is not the same. If it comes with connections and leverage, then that can really help accelerate a startup’s growth. Can you talk a little bit about kind of is there any mentoring involved or any kind of maybe connecting the startup with beta clients or are people that might be good use cases to demonstrate the value of the startup. Is that included in part of the way you guys work together, or is that something separate?

Dave de Csepel: Oh, absolutely. That’s included and much more. But to answer your first question, um, we are all, you know, as investors, we are all we’ve all done well in our careers. We’re all at a point to have this extra money to make these angel investments. And so many times that includes many of us who have been started, businesses ourselves, who have made right the right investments or succeeded, whether it’s in real estate or small businesses. So once a company is formed and ready to take on clients, um, we’re an important resource for introducing those to clients, whether it be municipalities or whether it be just other firms to help them along. Um, another way we connect is and this is the strength of the Tech Coast Angel venture Group. We are six, um, groups out there where six important angel groups. So if you come and apply to one group and we like that, one group likes what, what your presentation is and figures out a good valuation, then we are very quick to introduce you to the other five angel groups. So if one angel group might make an investment of 300,000, it might very quickly turn into 1 million or 1,000,002, uh, through quick introductions to our other angel groups. And that’s our value to investors as well, that we get great referrals from groups that have done the due diligence, that have established a personal connection with the founders and believe in those founders enough to refer them to our other groups.

Lee Kantor: And then you mentioned a few of the kind of sweet spots for your group specifically, but is that like when you look at the whole kind of six, uh, angel group that you’re all a part of? Is that cover pretty much the entire, uh, economy in terms of industries and expertise, because I would imagine it covers a lot of ground.

Dave de Csepel: Um, uh, to answer your question, yes. I mean, we cover a lot of different, um, a lot of different businesses come our way. Some of our groups are more, uh, have more expertise than others. So we would refer that, we would first, uh, for instance, medical devices or life science startups. We have a group based out of Washington, DC called Meta Angels. That’s m e d a angels, and they comprise of 40 or so, uh, medical researchers or doctors that would quickly analyze any kind of startup and then kind of get back to us to say whether it was an investment worth pursuing. Uh, here in Pasadena, we specialize in software and, and SaaS plays, um, and in Los Angeles, in the West side of Los Angeles, obviously, they’re very strong, not just in software plays, but also entertainment, type startups in Orange County has is pretty strong in life sciences and medical devices themselves. So each of our chapters does have a bit of an expertise, and we’re quick to kind of analyze and see if it’s an investment that’s right for our group.

Lee Kantor: Now, what’s your backstory? How did you get involved in angel investing? Is this something you’ve done throughout your career?

Dave de Csepel: No, no, it’s I’ve had to kind of earn my way up to this, you know, to this point to be able to invest and invest smartly. It hasn’t always been the case. My career has been in the business side of television. Um, I started out actually my very first job out of school was in 1988 with ESPN. And ESPN was so young at that point, I was in the ad sales department in New York, and we would trade golf clubs for advertising. And, and every Wednesday the the fence would come to pick up our golf clubs and we would trade, you know, we would we would get $0.30 on the dollar for all the golf clubs that we would deliver, uh, to them. And that was the way to fund ESPN as we were growing and, and had just kind of minor sports. And so I was happy to be that really kind of taught me a little bit about the excitement of being part of a startup. I know 1988 ESPN had been around just for a few years at that point, but it was fun to see how it operated. I then moved on to working with Coca-Cola and McCann Erickson and Foote, Cone and Belding as well. And then finally I spent about ten years at Discovery Channel, uh, part of Discovery Communications, uh, doing other advertising sales in New York and in Chicago, uh, with my end of the year bonuses in those days and more luck than anything because the cable TV market was growing, uh, pretty well at that point.

Dave de Csepel: I used those bonuses to invest in Southern California real estate in the form of apartment buildings. And finally, uh, in 2003, I made the move to the West Coast and fully developed a lot of these properties and even got into some development, developing apartment buildings into nice condos and so forth. Um, doing well in that. Then I transitioned to small businesses, and as of about, uh, ten, 12 years ago, I got into, um, investing into some small businesses, serving as a part time CFO for a couple of them and learning about this market. I met up with, uh, the Pasadena Angels, oh, about ten, 11 years ago. And I found out it was much more valuable for myself and strategic for me to invest side by side with some experts in various ventures, uh, than to try and do it on my own. And I’m glad I made that decision. So that’s how I came about, in a roundabout way to, uh, Texas Angel venture Group and the Pasadena Angels. And today I’ll just throw in also that I, I teach a course in entrepreneurship at a local college here at the Art Center College of Design, which is a well regarded art and design school, and I enjoy teaching grad students, uh, in, in entrepreneurship.

Lee Kantor: Now, do you have any advice for people who are new to angel investing? Is this something that it’s best to become part of a group, find a group in your area and then kind of immerse yourself in it and try to get involved that way, rather than kind of going at it alone, because I would imagine, you know, going from risking, uh, your finances on things like real estate or things you might know or be familiar with is a lot different than investing in a startup.

Dave de Csepel: Uh, yeah, that would be my advice. I’m always attracted to people who know what they don’t know. And, um, and I found in the angel group in the early days of making angel investments, I admit, I made a couple of mistakes in looking at companies getting swayed by what I think is a great idea, but successfully investing into a startup takes several factors. It’s a little bit of luck, but it’s very much the team that’s involved. It’s very much the product. Is it different than what’s out there already? And and with all those things, you just see a more clear picture. If you can do it with colleagues and and and folks that can help you, you know, answer questions. Obviously that founder always wants to position their company in the best possible light, but it’s up to that angel investor to find out the answers whether it’s truly viable for success. And so I found that I’ve had many more successes after I joined the angel groups because of that collaborative approach to investing.

Lee Kantor: Can you share a little bit about what it’s like to kind of pitch to your group, like if I, if I am a startup founder and I have an idea that I think is viable and I hear about Tech Coast Angels, like what is the process? How would you kind of vet my opportunity? And can you share a little bit about what those early steps, those early conversations look like?

Dave de Csepel: Sure. Um, well, I would encourage, if you believe that you are ready for a seed round or an angel round, um, I would encourage you to visit the TCA venture Group website and and apply for funding. Um, now, not all applications are the same, but I would say what is in this market of high interest rates? Uh, we tend to look at companies that have some revenue, some monthly revenue per month. And so that will get the most attention. It doesn’t have to have a lot, but it has to be successful in one market or another, and it has to start showing some success. Uh, right now seed investment, we’re we’re in the stage of looking at companies that we can help scale up. Not so much get out of the idea stage, but really start to drive more revenue than you already have. We don’t mind if there’s a loss right now. It doesn’t have to be cash flow positive, but we do like to see some revenue right now, and you can read more about it again on the Tech Coast Angel venture Group website.

Lee Kantor: So are there some questions that are. You must be able to answer like do you have to be clear on okay, this is my ideal client. I know who that is. It’s just a matter of I got to just reach more of them or, you know, my, um, my service or product has been at least tested somewhat. And I know that somebody will pay money for this. Not just like it or share it.

Dave de Csepel: Sure. I mean, come on in and make that point. You know, we all have that process. And if you get to the stage where you would be interviewed by 3 or 4 members of our groups, that would have some experience around your area and ask you questions for 15 minutes. We don’t want to waste the founders time, and we don’t want the founders to waste our time. So we’ll get right to the meat of the matter right now. Uh, I’m making generalizations when I say you need to have monthly revenue. That tends to. I’m kind of looking at our results of what we’ve been funding this past year here in 2024, and I tend to, you know, with, again, with a high interest rates, the expectation of raising more money a year from now is, is, uh, you know, it’s difficult when there are lower interest rates. Investment was money moved a lot more smoothly. And so garnering investment seemed to be a lot easier. Um, but if it’s a certain area, such as life sciences or medical device, it’s well understood that that needs FDA approval or some regulatory approvals. And so we’re willing to bypass looking at, you know, revenue perhaps at that point. But if it’s if it’s software or if it’s a granola bar or something, you know, of that nature, then yes, we probably would need to see some revenue if we were going to take you to the next stage. Um, every if you, if you come on to the website, everything is open for applying. It’s I’m just trying to set expectations as to what gets funded.

Lee Kantor: Now, is there a story you can share about a startup that made it to a new level? Is there, you know, maybe name, not name the name, but maybe come share a little bit about the challenge they came to you with and and how you were able to help them get to a new level.

Dave de Csepel: Uh, sure. We’ve just had a couple of exits, which I think are going quite, which have gone quite well. Uh, there was a, um, there was a company out of Santa Barbara called Parents Square. Now Parents Square, uh, they offer an interface between, uh, between schools and parents regarding, uh, you know, a child’s progress and so forth. It’s it’s the interface which might provide report cards, might, uh, also, uh, tell you, if you have a snow day, all sorts of communications that go on when passing angels. When angels overall first invested into Parentsquare, they just had 1 or 2 school districts out of Santa Barbara. Their local, um, their local area evaluation at that point was about 5 or $6 million. And, uh, this founding couple, they did a terrific job of, um, of developing their website and selling it through the rest of California. We invested again once they had one market down, and we started started speaking to those customers and finding out, you know, whether they were happy with the results that Parentsquare had offered them. Uh, once that investment went through, we helped them along. We made some introductions, but they did a lot of the work themselves.

Dave de Csepel: And today they’re in about one 12:45 third of all California school districts, and they’re nicely spread throughout the country, having, uh, about one 12:45 third of all school districts in Connecticut, New York, Indiana, and really throughout the country. Uh, they’re quite well known. So what does that mean for evaluation for our investment? Well, private equity firm came in and put a valuation of about 60 million on them, uh, just a few years ago. And that gave investors a chance to get out at, uh, at 100% of their money at about 11 x return, or investors were allowed to stay in for two thirds of the shares and only take out one third. Well, all of us investors really did believe and still do believe that the company would be in good hands, and the founders were still in charge. So we all made 12 X on our money on the basis of just one third of our shares now keeping two thirds of our shares. And we believe now the company is at a valuation of about 150 to 200 million. So we’re really we’re quite pleased with that, uh, success and seeing that growth of, of that company.

Lee Kantor: Wow. That’s an amazing story. Um, so what do you need more of? How can we help you?

Dave de Csepel: Well, we just would love if investors, if you were an angel investor out there and you’re looking to, uh, have great access to deals and to see pitch presentations, and, you know, we my kids ask me all the time about the Pasadena Angels and about Tech Coast Angels and I, my short answer to them is we’re respective Shark Tank. Um, we’re very respective to the founders that come our way. We offer them, even if we don’t invest, we we might offer them some advice. We’ll keep them on a short list and continue to mentor them. If it’s an area that we believe in, um, and, and then when we do make an investment, we like to stay involved with those companies and help them achieve success. So from an investor’s point of view, you know, you side by side some very bright minds. We’re not venture capital. If you wanted to invest, take less of a risk, maybe find a great venture capital group and you would pay the fees that are associated with that. But truly we’re about we’re a co-op investment club for the most part, where folks can come in and, uh, and make investments and hear the pitches just like, just like all of us, and then decide themselves whether that’s something they would like to invest in. So we’re we are a way to organize, um, investors, um, when founders come to visit us and make their pitches.

Lee Kantor: So if somebody wants to learn more, have a more substantive conversation with you or somebody on the team, what’s the website one more time?

Dave de Csepel: Uh, TCA venture group.com.

Lee Kantor: Well, Dave, thank you so much for sharing your story today. You’re doing such important work and we appreciate you.

Dave de Csepel: Thank you. Lee. Thank you for the time.

Lee Kantor: All right. This is Lee Kantor. We’ll see you all next time on Pasadena Business Radio.