Tuesday, October 8, 2019

Startup-People of Seattle: Geoff Harris (Venture Capital)

The blog-series “Startup People of Seattle” introduces some of the key personas in the ecosystem to learn more about what they are doing, to share their thoughts and ideas, and to promote networking.

In our tenth interview, meet Geoff Harris:
“What I discovered during my years as business angel was that there is enough angel money in Seattle. Startups don’t struggle in their angel rounds. There is also enough Series A and B money. However, the first institutional round, called the seed round, is very underfunded.”
Geoff has many years of experience as an angel investor. He has been involved in many angel groups. Today he is partner of Flying Fish Ventures, a seed-focused VC-fund.

Q: Could you please shortly introduce yourself and, coming from Microsoft, your background in the entrepreneurship scene?
A: I got into entrepreneurship via angel investing. Specifically, my first exposure to that was the Seattle Angel Conference, which a colleague of mine motivated me to participate in. After that experience, I became deeply involved in angel investing for about five years doing angel investing basically as a full-time job after retiring from Microsoft. I was involved in about half the angel-related groups in town.
What I discovered during my years as business angel was that there is enough angel money in Seattle. Startups don’t struggle in their angel rounds. There is also enough Series A and B money. However, the first institutional round, called the seed round, is very underfunded. As a result, many companies fail or relocate to Silicon Valley. Flying Fish Ventures is a consequence of realizing this gap in funding.
Q: Could you explain the terms “Seed” and “Series A”?
A: A seed investment is the first investment of institutional capital. It tends to be a raise around two to three million dollars, and its goal is to get a product from the point where it is ready to launch to the point where it achieves Series A metrics. 
Series A tends to be growth capital. By the time you get to series A the business should be pretty much dialed in and the founding team should have found a repeatable business process. At this point, inputs and outputs should be predictable, meaning an investor can calculate that if he/she invests x-amount of dollars, this will allow the business to achieve y-amount of growth resulting in a return of z dollars.
Q: You said you started your startup journey as angel investor. What all groups have you been involved in?
A: I was a member of the Alliance of Angels and I still sit on their screening committee. I was also an angel investor in Techstars and SeaChange and I am a mentor in the Alexa Accelerator. About half of my investing, however, I have done individually. Being member of all the angel groups allowed me to have good deal flow.
Q: What was your biggest surprise about angel investing when you started?
A: Coming from a big company, like Microsoft, the biggest surprise initially was the efficiency of startups, meaning how much they can do with very little resources.
I was also surprised by the lack of discipline and structure in an angel-only round vs. an institutional round. 
Q: What are some of the things you have learned as an angel investor?
A: One thing I have learned, that is very basic, is the portfolio theory. The portfolio theory says that doing a single angel investment, or just five angel investments, is not a good idea. You must build a portfolio of investments because, while every single company itself looks like a potentially good investment, you cannot predict which startups will succeed.
Q: Now let’s talk about Flying Fish Ventures. What is the fund’s investment thesis?
A: We are a regional fund. Like I said earlier, we believe that this market (Portland; Seattle and Vancouver, BC) is underserved, which we view as an investment opportunity. A lot of startups are looking for seed funding. Regarding specific industry, we focus on AI and machine learning. 
Q: What do you think of the trade-off between diversifying a portfolio vs. investing in one industry that you have expertise in?
A: I recommend doing the latter. However, most angels don’t have a thesis, they tend to invest in whatever looks good. Part of the reason for this is the intellectual satisfaction that comes from learning about new industries. 
Q: Since you believe investors should stick to what they know, how closely do you think they should work with companies that they invest in?
A: I think the involvement should be tailored to the needs of the business. It is, for example, a completely different level of involvement that is healthy depending on the experience of the founding team.
Also, in an institutional round being involved in the startup is much easier. In an angel round, often there are many angels (10 to 30) who invest in one round. If each of these angels feels like he or she now has a say in the company, things get messy and overwhelming for the founder very quickly. 
Q: What do you think are the biggest challenges in angel investing and VC-investing?
A: I think the biggest challenge is deal-flow, meaning the amount of quality deals that you get the opportunity to participate in. I think most investors are reasonably good at selecting which companies potentially could be a good investment. Coming along those companies, however, is not easy.
For VC, if you are a popular VC firm, this is not as much of a problem. Startups will most likely come to you. Therefore, I’d recommend angels to also become a limited partner (LP) in a popular fund to have more exposure to good deals.
I also think that when it comes to angel investing, Seattle needs more lead-investors. Lead investors, or “super” investors, are willing to be the first ones to invest in a company and to lead an investment round.

Here are some things I learned from this interview:
  • An angel round typically involves 10-30 angel investors. It is very rare that one single angel invests an amount that is big enough to cover the needs of a whole investment round. 
  • Deal-flow is key for investors. To increase deal flow, angel investors should be involved in angel groups, funds and networks and in VC funds. 

In the interview Geoff mentioned some resources and organizations he finds helpful, find out more about them here:
Seattle Angel Conference: https://www.seattleangelconference.com/
SeaChange Fund: https://seachange.fund/

About Seattle Angel:
A strong ecosystem creates an environment that allows startups to thrive. Seattle Angel’s goal is to strengthen Seattle’s startup ecosystem by increasing the access to funding for entrepreneurs to push their ideas further.

About the author: Sven Goepfrich

Sven Goepfrich is currently finishing his MBA in Syracuse. His studies focus on technology, innovation and entrepreneurship. At his school, he is working for the department of finance. Sven was actively interning with the Seattle Angel Conference in summer 2019. He is currently looking for full-time career opportunities in this field.

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