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 12th interview, meet Gary R. Ritner:
“Here is one portfolio theory: Rob Wiltbank studied angel returns for years. The results have been approximately the same. If you invest in ten start-ups, five go broke in the first two years, three will return something, but you make all your money on one or two deals. Overall the return on investment in angel investing is high, IRR +20%, but you must have a portfolio to minimize risks. I suggest investing in at least 15 companies.”
Gary R. Ritner is co-founder and president of the Puget Sound Venture Club, PSVC.
Q: Could you talk some about your background?
A: After college I worked in both big and small stock brokerage companies. At one point I realized that what I enjoyed doing most was raising money for startups, so I did that for about 30 years. In 1985 venture clubs started to form around the country and a local attorney, John Steel, said that we needed one in Seattle as well. This is how the Puget Sound Venture Club came into existence.
Q: Could you talk some about the Puget Sound Venture Club?
A: Compared to Keiretsu, Alliance of Angels and E8 we are small. We have a membership cap of 35. As an angel club, the Puget Sound Venture Club does not have a fund, so every angel makes individual investment decisions. The purpose of the club is to be a place for investors to see deal-flow and to network. We are looking for technology startups that are raising go-to-market money, meaning the product should be done. Sometimes, we also invest in medical and medical device startups prior to FDA approval. We focus on northwest startups. Present and past members have made over 1000 investments since we started.
Q: How does the process look like for founders who want to present their startup to the Puget Sound Venture Club?
A: Founders often contact me first and I will schedule a 30-45min call with them. After that, if both parties agree, the companies send an executive summary. The Puget Sound Venture Club charges them $150 to do that. Out of all the companies sending in an executive summary, we choose approximately six companies each month to present to our screening committee, and two or three of those companies get the opportunity to present to our membership. Typically, no formal due diligence happens after that, so it is up to each member to decide whether to invest in either of the startups or not.
Q: What criteria do you look at when deciding whether to invest in a startup or not?
A: Most important is the team. I also look at go-to-market strategy, being realistic about competition, and deal-terms of the offering, meaning whether the pre-money evaluation is too high. A lot of evaluations are too high as founders are often over-optimistic. We also want to see the potential of a 10x return within five years. Aside from these items and since we get our money returned through an IPO or an acquisition, founders and investors must agree with those exit scenarios. I like entrepreneurs who have the ability to recognize their mistakes early and who can adapt if something is not working. I suspect Jeff Bezos has that unique ability to recognize his mistakes early. I want entrepreneurs to be aware of what they don’t know and to listen to advice. Many refer to this as the coachability aspect, and in my experience, female entrepreneurs are much better at this. Intuition, or “gut feel”, is another important trait for a CEO, and I think female entrepreneurs generally have that trait more than men as well. Startups also shouldn’t be naïve when it comes to sales. Many founders believe that great products sell itself, but that is not how the business works. “Nothing happens in the world until somebody sells something.”
Q: What are things founders often do that investors don’t like?
A: The number one complaint I hear from investors is that founders do not keep them informed about what is going on. Founders should always keep investors in the loop through monthly or quarterly updates.
Q: What advice would you give a new angel investor?
Here is one portfolio theory: Rob Wiltbank studied angel returns for years. The results have been approximately the same. If you invest in ten start-ups, five go broke in the first two years, three will return something, but you make all your money on one or two deals. Overall the return on investment in angel investing is high, IRR +20%, but you must have a portfolio to minimize risks. I suggest investing in at least 15 companies.
Angels must be aware that it can become difficult to see many startups fail early on while waiting on first returns. A lot of people, who are wealthy enough to angel invest, are not cut out for angel investing because of that. They cannot live with losing half their money in two years. It takes a certain personality.
Another aspect I’d advice to consider is whether an angel wants to be investing individually or as part of a fund. Most companies only accept a minimum investment of $50K. So, to be an individual investor you must be willing to invest around $750.000 – 15 deals. If you want to invest less while having a diversified portfolio, venture funds are the way to go.
Here are some things I learned from this interview:
In the interview Gary mentioned some resources and organizations, find out more about them here:
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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