In this edition of Lived It, we sit down with Jan Davis, a retired CEO, entrepreneur, and board member who has created her current career out of building and advising businesses – from startups to mid-cap private companies and nonprofit organizations. Now, as a member of the Triangle Angel Partners angel investment group and on the Board of Directors at GSP, SEAL Innovation and ShowingTime, the North Carolina-based investor invests both independently and through funds curated through the group of experienced professionals.
We sit down with Jan to discuss the different approaches she takes while investing solo compared to through a fund, how her deal flow has evolved since she began investing, and Fear Of Missing Out (FOMO).
Years as an angel investor: 5 years Number of investments: 7 + two funds
It’s difficult for Jan to say what she can expect of her schedule on any given day. One of the only things that remains constant is her morning ritual: “The first thing I usually do is drink a cup of coffee while I check my email, calendar, and the weather on my iPhone or iPad. From there, every day is so different.”
Some days, Jan could have multiple meetings or phone calls with (aspiring) entrepreneurs then head off to a Blackstone Entrepreneurs Network meeting. But she also spends time on campus at University of North Carolina at Chapel Hill, where she is an Entrepreneur-in-Residence and “Professor of Practice” in the Minor in Entrepreneurship in the College of Arts and Sciences. Her work even takes her to Chicago, Illinois and Clearwater, Florida for board meetings.
“It is a very varied life,” she said.
Jan has had a series of entrepreneurial and management positions throughout her career. She co-founded SmartNames, a direct marketing information, analytics and services company where she also served as Chief Financial Officer for three years. The venture-backed startup was one of two that she was involved with during the late 1980s in Boston. Jan held subsequent positions as Executive Vice President and Business Unit President at TransUnion and CEO of ShopperTrak, respectively, and joined the board of the Illinois Technology Association.
“When I left ShopperTrak, I started getting phone calls from CEOs that I’d gotten to know through the Illinois Technology Association,” she said. “That led to some advisory board work, and it essentially snowballed from there.
“My first angel investment was in ShowingTime, a company where I was serving as an independent board member. My second investment was in what I would call a friends and family round of GeeYee, where I was on the advisory board. ShowingTime has done very, very well, but the other, GeeYee, is a total loss. The company has failed.”
In addition to Jan’s seven personal investments, she is also an investor in two funds run through Triangle Angel Partners (TAP), a group of experienced angel investors who invest in early life cycle companies in the high tech and life sciences industries based in North Carolina. In Fund One, the group made nine investments. Fund Two has closed and several new companies are now undergoing due diligence analysis.
“That was one of the things that interested me in investing in an angel fund,” she said. “I really felt that by basically ganging up with other people, I could do a better job at sourcing and evaluating potential investments as well as getting some diversification. We’ve invested in things like a medical device company, and that’s not something I would ever feel competent to evaluate on my own. But the company is doing extremely well. I like the power of the group.”
Jan’s fellow angel investors and community connections have been pivotal in her investment education. None of Jan’s family, and very few of her friends, have ever done any angel investing. Now, as a result of her involvement, they are intrigued, and when they have questions, she is able to answer.
“I like the power of the group.”
Jan also serves as an advisor to Freedom, The Launch Place Fund, AlphaRank, First, iScribes, Akili Software, Gift Boogle, Market Vue Partners, Megalytics, and Three Ships. Among the many other companies she invests in, one striking success story is Stealz, which coordinates social media marketing for quick service restaurants. Restaurants’ customers post pictures of their food or companions on Facebook, Twitter, and Instagram to get points that can be redeemed for discounts or free food, which generates more authentic social media marketing. Jan first met Stealz’s CEO and co-founder Jim Zidar about three years ago and took on an advisory role at the company. “We went through his pitch deck and organized what’s referred to around here as pitch scrubs a couple of times as well.”
The team of four co-founders was a key reason why she signed on as an advisor, and ultimately ended up investing in the company. “It’s a very well-balanced group in terms of tech talent, sales and marketing talent, and tenacity. They got consumers by basically driving from city to city. They would sleep in their cars and got a subscription to the biggest truck stop chain so they would have a place to shower. Now, it’s hard to argue with that level of commitment,” she said.
After about eight months, Jan started helping Jim connect with other angels in the community. That’s when he finally got a term sheet from a very active local investor, David Gardner. It wasn’t clear to Jan at the time if Triangle Angel Partners was going to make an investment before the round closed.
“It turned into what we call FOMO, or Fear Of Missing Out, so I made a personal investment,” she said. “Triangle Angel Partners did make an investment and it’s been another follow-up round and both TAP and I have invested in the subsequent round as well.”
“It’s kind of a two-part motivation. The first part of it is that I love entrepreneurs and I love to help them succeed. The companies where I’ve made individual angel investments have been companies in which I’ve been very heavily involved so I’ve felt that I could at least influence the success of the companies. Not always successfully, but I’ve always had some influence. The second half of my motivation is for financial reasons. I’m looking forward to, I hope, some good eventual outcomes from the investments I’m making.”
Jan found her first investments through word of mouth from people she knew and respected in her community. Jan sees a much higher volume of deal flow now that she has developed her reputation in the investment community and has established a formula for finding potential new investments.
Pitch events, the angel group and funds she belongs to, as well as her reputation have become her standard modus operandi for finding new investments. “I go to all kinds of pitch events,” she said. “There are usually a couple of pitch events every month in this community, so I can’t even go to them all.”
She likes to personally invest in companies where she can be involved, so her investments tend to be in the Raleigh-Durham area. She also invests in and around Chicago, Illinois, where she lived for 14 years before moving to Raleigh. She still has many connections in Chicago and is on one board of directors and one board of advisors for companies based there, so she often travels to the city as well.
“At this point, since I’ve spent the last few years as president of Triangle Angel Partners, I’m also somewhat of a known quantity in the community so I get a lot of introductions from attorneys and from other entrepreneurs who know me. I haven’t found deal flow to be so much of a challenge in the past year I would say. I see a lot of deals.”
Jan’s active involvement with the many companies she invests in allows her to offer keen insight on industry and business-building, but the flow of advice can also go both ways. Jan has created an AngelList profile as part of the tools she uses to manage her investments after learning about the benefits from several start-up CEOs.
“I really encourage companies to get out there and put up a profile on AngelList.”
“Some of the companies have been very successful using it for recruiting talent,” she said. “I really encourage companies to get out there. And then, of course, if they have a profile then they want you to verify that you’re an advisor, which leads to expanding your profile and all those kind of things. I didn’t start out to have a profile there but once I had companies out there I kind of had to do it.”
“As far as other tools go, TAP also uses Gust (it used to be called Angel Soft) as a tool for managing deal flow. That’s a sourcing tool, although they’re more likely to find us than we are to go looking for them. There’s a new tool that we’re evaluating called ProSeeder, and the word is still out whether or not we’ll be using that.”
”It depends. I am blessed with many great advisors across the country, so I seek out people who know more about the specific product, service or market. If it’s a deal structure question, I’ll go to Merrill Mason, who’s a local attorney and a fellow investor in TAP.”
Most of Jan’s recent investments are through Triangle Angel Partners, and its investment evaluation process is a series of sourcing, whittling down, and due diligence.
There is an established process that she and Triangle Angel Partners follow in order to decide whether a company is worth investing in. First, they looking at the terms that either a lead investor or the company itself has put forward. They then compare the terms to the available information from the Angel Capital Association, the Angel Research Institute, information from their attorneys, and their prior experience about what is “normal.”
“It’s much healthier if you have at least two co-founders or even three, than if you have one hero and a bunch of minions.”
“Like everybody else, we love serial entrepreneurs who’ve had previous successful hits,” she said. “But, aside from that, we like teams, not solo entrepreneurs. It’s much healthier if you have at least two co-founders or even three, than if you have one hero and a bunch of minions. We look for somebody in the founding team who has a bent toward the market, towards sales and marketing. The biggest issue that we see for entrepreneurs is that they have a great concept, a great product, and they have no clue how to get anybody to buy it.”
After comparing the enterprise in question with other enterprises, they have to decide whether it is better or worse, and if the pre-money valuation makes sense.
“We want our interests to be aligned with the interests of the entrepreneurs.”
“Do the post money valuation and the future capital requirements suggest that we might be able to get a 10x plus return, cash on cash in five to seven years? We try to look at those factors and try not to add terms and conditions that will make it challenging for the enterprise to raise another round. We try not to be punitive. We want our interests to be aligned with the interests of the entrepreneurs.”
Jan’s level of involvement with her investments varies. In some cases, particularly in the early stages, she will have weekly calls with the founders to ensure that the company’s going in the right direction. If the company is more mature, they touch base less frequently.
“I’m always on the lookout for interesting connections and interesting opportunities in the companies with which I’m involved. I kind of nag them for regular updates if we aren’t having weekly calls or bi-weekly calls, I’ll be reaching out on kind of a regular basis with, ‘Hey, let’s get together for lunch,’ or ‘Have you seen this thing? What do you think about it?’
“If you’re an accredited investor and are considering doing angel investing, joining an angel group or fund is a great way to get your feet wet, and it’s a great way to avoid rookie mistakes. As you gain experience and confidence you can make your own direct investments and have better success out of the gate,” she said.
“Avoid the mistakes that I made and make sure that you are seeing enough deals to make good choices. Make sure that you’re doing appropriate due diligence and not, in essence, just falling in love with an entrepreneur and the concept and believing that your involvement was going to be able to overcome the obstacles that you might overlook because of your enthusiasm for the entrepreneur and the concept.”
After learning about the benefits of AngelList, Jan now recommends creating a profile to any company that she is advising, and to all the companies in which she and Triangle Angel Partners have invested.
“It’s a great way to be known, so if they’re going to need to raise future capital, they’ll have a history out there,” she said.
Jan also recommends that entrepreneurs seeking investment show up prepared, are knowledgeable, and highlight the team’s strengths. She, and other active angel investors, want to see evidence of a quality team that is executing, has completed a prototype, and demonstrated some evidence of product market fit.
“I’m happy to talk to entrepreneurs when they’re short on any of those things, but the advice I’ll give them is to work on a team, the momentum, the model of traction, and make sure that they have something to demonstrate product market fit.”
Preparedness and skill are key, but Jan said personality is also a highly influential factor when angel investors are deciding whether or not to invest.
“Many angels have been entrepreneurs themselves and have made their own mistakes and often have decades more experience than a young entrepreneur, so we need to see that people are willing to take good advice.”
“When angel investors talk to each other, one of the things we discuss is coachability. Is the entrepreneur somebody who will listen critically to feedback and put it into action? Obviously it’s the entrepreneur’s concept and business and so it would be foolish for the angel investor to think that he or she knows better than the entrepreneur about everything.
“But many angels have been entrepreneurs themselves and have made their own mistakes and often have decades more experience than a young entrepreneur, so we need to see that people are willing to take good advice.”
Nail It then Scale It: The Entrepreneur’s Guide to Creating and Managing Breakthrough Innovation by Nathan R. Furr and Paul Ahlstrom. Recommended to Jan by Adam O’Donnell, founder of Buzz Report.
“It’s a handbook for early-stage entrepreneurs, and it’s extremely useful so I’ve been recommending it liberally,” Jan said.