Friday, July 25, 2008
Interview with Warren Hanselman, Tech Coast Angels
The Tech Coast Angels (www.techcoastangels.com) is the largest, and most active angel group in Southern California, and recently crossed over the $1B mark in terms of attracting third party and venture capital funding for its portfolio companies. To hear a little bit more about its recent investments, and for some color on how angels are reacting to the economy, we spoke with TCA Vice Chairman and database statistician Warren Hanselman.
Tell us a little bit about the $1B mark--is that from day one of the TCA?
Warren Hanselman: The $1B mark is from day one. It's the total investments in our companies, our money plus outside money. We crossed the threshold sometime in Q2 of this year.
Was there any particular company that pushed you over the line?
Warren Hanselman: It's a combination of deals, we had five new deals this year plus several follow on rounds, so it wasn't any particular deal. However, one of the most significant fundings was Trius Therapeutics, which raised $30M. We funded that firm when it was Rx3. That helped a whole bunch.
What's your opinion on how the economy has affected your deal flow and investments?
Warren Hanselman: Looking at our numbers, by year, in 2005 during the first half we had 11 deals where we put in $5.1M in our own money. In the first half of 2006, we did 9 deals, with $3.1M. In 2007, it was 6 deals, worth $3.1M again. And in 2008, we did 5 deals, worth $1.9M.
So that sounds like it's been a bit slower this year?
Warren Hanselman: Yes, though that might be a little misleading. That doesn't include money we've put into follow on rounds to companies our present portfolio--that's just money into new deals. However, the assumption is its still trending down. Things are tough. Right now, there are many of us with a portfolio with brackets with lots of 0's -- and that's nothing to do with angel investing.
What would you tell entrepreneurs looking for funding--are angels still investing?
Warren Hanselman: We're still doing deals, but the criteria is higher. However, it hasn't been too shabby in the first six months, our average dollars per deal is still 400K to 500K.
Are there any particular sectors the activity has come from?
Warren Hanselman: Historically, excluding low tech and the life sciences, we've got 57 deals in the tech sector, putting $23.4M in first round money. In low tech--which is consumer products, retail products, industrial, business software, and financial--we've had 74 deals, worth $37.7M of our own money. In life sciences, it's 14 deals, worth $4.5M.
Is any particular chapter of the TCA more active than others recently?
Warren Hanselman: There's the perception right now that there's more activity of of LA, but that cycles around. There's no apparent pattern to that, it's more a matter of relying on someone in the group liking something. It's mostly happenstance, and over time there's no real pattern. It's pretty even across the group.
Speaking of follow on rounds, do you see any pattern on which companies manage to get follow on funding or not?
Warren Hanselman: It's not unusual to have a follow on, as typically a company gets legs early on or it fails. If it starts to develop legs, the VCs will come in, and usually don't want us to clutter them up. Deals like Trius are not uncommon, where they raised a $30M round, which was done entirely outside of the TCA. But, you'll also see deals like MakeItWork, which provides in-home computing services, and even though their valuation is way up, they just needed money to top it up for marketing--they're blowing and going--and it was strictly us. Usually, once a company is up and going, the VCs and a syndicate pick up the yoke and it goes. When a company starts to vector North, the VCs jump on board. A good business is a good business, and will find investors. There's no particularly good category or bad category.