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Episode 85: Part 1, Who’s that angel? Exec. Dir, Ben Pidgeon of VisionTech Partners

The risks and rewards of angel investing with Ben Pidgeon

SHOW NOTES

In this episode, VisionTech’s Executive Director Ben Pidgeon, joins us to discuss angel investing, how it works, and the risks and rewards associated with it…

 

Ben Pidgeon worked in banking for almost 20 years before becoming the Executive Director for VisionTech.

 

VisionTech is one of the most active angel investing networks, with investments in over 150 of the nation’s hottest early growth companies.

 

Ben shares with us all he’s learned about angel investing, the risks involved with it, and how long it tends to take investors to see a return on their capital…

 

“How many buyers are out there, how many sellers are out there, and the quantity of buyers and sellers determines how liquid something is.” – Ben Pidgeon

 

“Talking to founders, brilliant people every day, learning about new markets, that kind of pulls you in.” – Ben Pidgeon


Time Stamps:

02:34 – Different things that make us feel old.

03:33 – How Ben became the Executive Director at VisionTech Partners.

07:55 – What a venture club is and how they work.

11:00 – The most interesting aspects of angel investing.

16:46 – What an innovation showcase is.

18:16 – Tesla’s and their ‘ludicrous mode’.

21:14 – What angel investing is and how VisionTech is involved with that process.

22:45 – What attracted Ben to working at VisionTech.

25:22 – The misalignment of capital flow in the midwest.

28:12 – How VisionTech was started and how Ben got involved.

29:11 – How much investment went through VisionTech when it started out.

30:52 – The percentage of investments that lose all of their value.

31:42 – How VisionTech works and what makes someone an accredited investor.

34:48 – How long angel investors have to wait to see a return on their investments.

39:35 – The risks of doing angel investing on your own.

 

Resources:

VisionTech 

 

Connect with Ben Pidgeon:

LinkedIn

 

Connect with Ben Jones:

 

TRANSCRIPT

BEN: Hello and welcome back to Money With Mak And G. My name is Ben Jones. We have a special guest today here who graduated from Econ, from Purdue University. He was previously a banker and he has some very insightful things about what we call angel investing. As we start today, we’re going to welcome here, Ben Pigeon.

PIGEON: Thank you. Excited to be here.

TONY: Welcome to the show!

BEN: Hey Ben, welcome to the show. We’re going to give a little bit of a break so they could do the music but you just jumped right in. I love it, man. How are you doing today? I’m doing great. All right. Well, we’re really happy to have you here. I’ve learned a couple of really cool things about you. I think like all young men, we always want to impress the women and we want to meet as many women as possible. So we’re going to have to get into that and how you did that in college, because I think that’s a great story. But what do you have going for yourself just today? Anything new and interesting this week?

PIGEON: No, you know, this week’s exciting because we’re distributing like 900 k ones.

TONY: Whoa. What’s a k one?

BEN: That’s like a Christie is number one. Like my wife’s name was Christie. I was number one. Yeah, sure. Okay, it’s a tax term about ownership on a percentage ownership. And you have 900 of them because you have some very interesting backgrounds on what you do and that’s why you’re here. Yeah. So what do we start with the fishbowl, Tony?

TONY: Oh, the magic fish bowl. I want to apologize in advance for Ben’s idea.

BEN: Tony’s idea. We’re going to give you this, you’re going to choose one piece of paper out of there. And you guys are going to answer.  Whoa, we got to work. Got to remember. No, you get to answer. So don’t look. Just reach in, pull one out, read it and tell us here. Oh, we got Tony Petro here, too. I think people should know you right about now, right?

TONY: I feel like I’m a guest a lot here.

BEN: You are. I guess your guest, yeah.

TONY: And by the way, he said, you know how, men are always looking, guys are always trying to get lots of girls and whatnot. Only one girl for me.

BEN: And you know where that’s going, right? That’s my sister.

TONY: He thinks it is funny when I tell him about his sister.

BEN: Oh, yes. I think it’s an uncomfortable laughter. So what do you got there? What’s going on Ben?

PIGEON: My question is what makes you feel old?

BEN: What does make you feel old Ben? You’re a decade younger than me and you’re two or three decades younger than Tony. What? What’s going on?

PIGEON: What makes me feel old? You know when my kids look up to me and say, what’s a telephone dad?

BEN: I think that’s a good one. Right? Do they actually say rotary phone or just telephone?

PIGEON: Actually, recently they were at their grandma’s house. And they came across one of those and got a kick out of doing a rodeo phone.

TONY: Is this an adult show? It is but you got to be careful. Can you beat me out. I’m about ready to show you something really scary.

BEN: Let me write it down. So you have a telephone is what makes you feel old. And congratulations on that. But tell us just a little bit about yourself. Because your current job is quite honestly fascinating, talks about money. You’re into investing and you’re a banker before. We just like to hear a little bit more about your story.

PIGEON: How I got to vision tech?

BEN: Yeah, that’d be great. Like, what was your prior job and why you went to vision tech and what gets you excited?

PIGEON: You know, it’s funny. Last week, I was doing a similar podcast and that was good. You know Tony, I got lucky. I feel like it. And I often ask the question, would you rather be smart or lucky? I guess I’d rather have more luck than smart. You know, that’s just how I take it. But I went to Purdue for a degree in economics. So you didn’t start off looking good. No, I didn’t.

TONY: That reminds me, Ben Jones went to Purdue for his first year. Then he transferred to IU to finish his degree. And when he transferred, the average IQ went up at both schools. I’m trying to work on it. It’s like, Arnold Schwarzenegger’s I’ll be back.

BEN: He wants to work that into every movie. Right? Okay.

PIGEON: That’s funny. I’ve heard the same thing about New Zealanders and Australians. I was at an angel conference and the same thing happened actually. These guys were betting back and forth. And you know what happened when?

TONY: Yeah, but when somebody moves from Australia to New Zealand…

BEN: He’s the mighty fighting bird of what do you call Ball States? I mean, don’t feel you’re on the planet. We’re going to get you chirp chirp. Yeah, but anyway, go back to your story Ben.

PIGEON: So, I went into banking, had a lot of fun doing mortgages and kind of working my way up the corporate ladder and then…

TONY: Was this in 2006, 2007 leading up to destroying the economy? We had a lot of fun.

PIGEON: I had friends doing that. And it was funny actually, there was a moment in the mortgage industry where I was like, this is just not sustainable. And I remember a conversation where we were looking up to a top performer and he had just closed a monster month, got a huge check. Gigantic check. Six figures and one month, okay. And then on Monday, I remember saying, I wonder what this guy did this weekend. What did he do? Said, hey, Mike, what do you do? I got each one of my four kids, a four wheeler. We just tore up the yard the whole weekend long. And I’m thinking to myself, this is just not sustainable. Like, how is it possible that you could blow it all. And I didn’t ask them how much they were any of those details. But I just thought to myself, this is just not sustainable in the industry.

BEN: And then how much longer until it kind of fell apart?

PIGEON: It took another five years after that.

BEN: Wow. So that took quite a while right? I remember telling my wife in Chicago that we were driving downtown and I go I don’t understand how all these buildings could go up. When people coming into Chicago was moderate, not even like you know excessive, and you have like three or four times the number of units going up and I said something’s wrong. And she always reminds me that she was you remember when you said that? That was like the start of the end? And I thought okay, I feel so smart. Just out of balance, right? It was out of balance. I did jinx it, sounds like Ben jinxed it five years early. And so you just did these mortgages, you’re working at the bank, kind of enjoying it.

PIGEON: Yeah, and then I went back to school, got my MBA from Kelley School of Business with the intention of getting out of banking.

BEN: Not everybody knows where that is. Wow, so number one MBA school for public universities. But yeah, it’s okay. It’s okay.

PIGEON: Yeah. And met a professor by the name of Todd Saxton. And I’m channeling Todd Saxton through this beard today. He’s good. Great strategy professor. Good guy. And through Todd, I got involved with the venture club of Indiana and met Oscar Morales.

TONY: What’s the venture club?

BEN: I was going to say what, for people, you know, that are just learning about money. What is a venture club?

PIGEON: Yeah, venture club of Indiana’s 30 year old organization that’s been around for, you know, 30 years. Back in the 80s, it was kind of the place that you went for deal syndication in Indianapolis, it was a deal sharing platform where people got together and heard pitches.

BEN: So when you start talking about deal syndication and hearing pitches, you’re talking about people that have an idea of a company and normally have already started something, right? And they’re saying, hey, like to get some money put together and will anybody Invest in me? Yeah. And so they come to the venture club, and they tell you or give you the pitch on what their company is all about, where they’re headed, which industry, they’re going to be in, how much money they’re going to make and all these crazy stuff, right?

PIGEON: Yeah. How big the market is, what the management team looks like, what the opportunity looks like, why would somebody buy their company after commercialization.

BEN: Exactly. So if you got into something like Amazon, like when it was starting and the venture club because that’s what happened with Amazon, they got a lot of venture rounds. Then if you got an early, if you hit the right one, like a unicorn, you could make an absolute ton of money. Right? Yes. So people are coming to you, giving you pitches, you’re sitting around talking about it, and then what’s going on with you?

PIGEON: So then you raise money and you might take on a board seat? Somebody writes a big enough check.

BEN: So you’re saying at the club, you guys had enough money to invest there?

PIGEON: There’s eras, right where you go through periodic changes in the late 90s, the internet bubble came along and all this stuff started moving online. Okay, so venture club had to kind of repurpose late in the early 2000s into a you know, what’s the purpose and function of the club. And it’s still throughout the, you know, the years it’s kind of been the spot where you go for local deal syndication and what’s going on, get a little bit of sense of what the investor is looking for from a deal, not just a deal flow, but what’s the state of the economy locally doing? And what are the local deals? Who are the local investors? It’s very investor focused right now. And it’s kind of turned into something that’s a lot stronger than it was historically.

BEN: So for the venture club, it sounds like something where the investors want to be part of the venture club right. They’re ready to write a check. Then you have people maybe a little bit more like you, which you’re kind of getting out of your MBA, you’re trying to learn stuff, right? Maybe you don’t have the ability to write big checks to get invested in some of these companies. But you’re hearing about it and now you’re learning about it. And Tony, that’s how do you get like excited about venture capital and angel? What happened to you because he sounds like he was interested in it. He just got his MBA. And now he’s hearing about it getting in the network, like what?

TONY: You know because I just had my business going for so long, and then eventually sold most of it. And I was like, man, this was really cool, you know, a cool journey. How can I help other people do that? And I think I said it last time was like, you know, when I started my company, I didn’t have any qualms about working 80 or 100 hours a week, I was a computer nerd, you can code all night long. But like now, it’s like after I got through my business, and I’m like I want to back people like that have that kind of drive and that urge. How do you find people who are starting up, they want to work their butts off and really go for it.

TONY: And so you had the cash. So you’re looking at a place to put it. But you also had this thing where you thought you could give some value as well.

TONY: Yeah, you know, coaching, mentoring, advising, like, there were several times big companies tried to take advantage of us even during the deal. And I’d like to know what to watch out for, can be very helpful. I’d love to invest with you. I’d love to mentor you a little bit. And I’d like to help you when they come and try to do those little death by 1000 cuts things they do during a deal.

BEN: Right, right. Yeah. So now you’re getting interested in it. It sounds like you’re pretty excited about it. You’re hearing all these new pitches, which for anybody out there who’s ever been to a pitch night. It’s crazy and it’s cool, right? It’s not like crazy stuff going on. But if you’re interested in new ways of doing things and new ways of solving actual issues where you could make money, the pitches are really cool.

PIGEON: I have a story that I’ll share a little bit later about I would call it a gold to lead moment. That’s backwards. Yeah, it goes the other way. So it’s just a little bit of foreshadowing, it didn’t turn out the way.

TONY: We’ve never had foreshadow.

PIGEON: See, that’s the Purdue and IU thing that’s going on.

BEN: Wow, the combination. You can’t really say that about Ball State.

TONY: Foreshadowing is usually going forward, Purdue to IU is like…

BEN: Going backwards? I hear you go with that. Always a jab in there.

TONY: Hey, no, but the interesting piece was is Ben was president of venture club. Yeah, so you got to get up in front of people and talk and run the show. And there’s a bit of a performing going on there, right? You got to like to be in front of people and you got a background in performing don’t you?

BEN: Okay, we’re here, hit it. Full throttle. So you liked girls when you were going to college right? And then you decided to do what now we’re completely off investing just want to let everybody know out there. If you’re ready.

TONY: That was foreshadowing then Ben, yes. We’re coming back to the performance, the pitch.

BEN: The pitch. Okay. The pitch. Give it to us Ben.

PIGEON: What are we talking about ballroom dancing by chance? So pull in something from like True Lies with Arnold’s or Al Pacino and Scent of a Woman. I’m thinking if these big macho guys can do it, surely I can.

TONY: And don’t call me Shirley.

BEN: Yeah, that’s great. So you decided to do some ballroom dancing. Any good?

PIGEON: Yeah, we had some fun, I started doing it. I tried out for the team and there’s a team of pretty good called the Purdue Ballroom Dancing team and I joined it.

BEN: And you used to be a wrestler like used to like grab guys for some fun and now you’re like, maybe I could dance with some women. This might be a lot more fun, less sweaty, smells better and what happens.

PIGEON: Just a little bit so I ended up winning a Collegiate National Championship in 1999, five dance events.

BEN: Wow. And what were your five dance events?

PIGEON: Cha Cha, Rumba, Swing, Mambo and Bolero.

BEN: National Collegiate ballroom dancing, five dances. I would have never figured you for that.

PIGEON: A lot of practice, a lot of work. Three hours.

TONY: Tell us about your hair.

PIGEON: Yeah. And I had blonde tipped hair. Of course.

TONY: From what 20 years ago, he sent me a picture. He’s like, hey, guys, and I’m like, who is that dude? He’s like, Oh, my God, that blonde hair, that you Ben?

BEN: Oh my God. Without a beard, blond hair and really tight pants? Is that what you wear? No chest hair, there was one of them. Right?

TONY: There’s this guy grows a beard in like three days. So I’m assuming he looks like a grizzly bear when you take your shirt off. That’s the inappropriate right there.

BEN: So you went ahead and won in 1999. But you go to IU, you get your MBA and now you’re at the venture club and you’re the president. So you’re getting up there, you’re talking about this stuff, you’re probably doing a great job, right? Because you’re a well spoken guy, intelligent.

PIGEON: It was a blast. So we were planning for the innovation showcase that year, and Governor Mike Pence was going to be there.

BEN: So what’s an innovation showcase? What’s that mean?

PIGEON: Innovation Showcase is kind of like a showcase of all the local talent all in one stage where we will bring in 20 companies to pitch for. I think at that time, we were doing a one minute pitches.

BEN: Gotcha. So then Mike Pence, who was the previous governor, who was the Vice President, right?

PIGEON: None of that. So this was all in the works. This was in like June, we’re planning out the event and the venue and pensive security detail is dominating the time of the people that we need to meet with. So I was talking to Oscar…

BEN: Who’s the guy you met, who later becomes part of venture Tech. Go ahead.

PIGEON: So Oscar founded Visiontech in 2009. And so I knew that Oscar had sold his company six months prior, it was all over the news, sold for $130 million to Brooks automation. And I didn’t know anybody that had sold their company for that much.

BEN: That’s a big number.

PIGEON: That’s a big number. So I said, Oscar, how’s life?

TONY: He said, well, you know, I was really stressed for a while.

BEN: I paid more in taxes last year, then you’re going to make it your entire life. I followed it. I do. Read $30 million bucks. he wants to easily like Peyton DAGs. Yeah.

PIGEON: So then he said, oh, it’s great. I got a Tesla. We’ve got everything on it.

TONY: And that thing is got Ludicrous Mode on it. Side story, he’s like, I met him for coffee. My wife and I were out for dinner or whatever. And she’s getting a little Starbucks. Hey, meet me. My car’s over there. I’ll take you for ride on my car. So she’s in the backseat, I’m in the passenger seat and he’s like, no, hang on, I’m going to show you this Ludicrous Mode thing, right? And so the back seat with a fresh Starbucks golf. He launches this thing. Bloop. All down her shirt. Oh, I was impressed though because thing is fast.

BEN: Your head goes back. It pulls over a jeep, you know that? It costs over 100G’s.

PIGEON: Does that hurt the battery life on the Tesla, in the remaining life of it?

BEN: When you hit? No, no, not that I know of. All it does is it transfers the electricity to the motors and it just goes fast.

TONY: I think it transfers a little bit more electricity. So the charge for the day. Just go back and plug it in and boom. So let’s get back to the story because I think it’s not about Tesla. Let’s talk about Ben.

BEN: Yes. Go Mr. Pigeon. Thank you.

PIGEON: So and then he said, I’m planning this trip to Southeast Asia. And I’ve been looking forward to this since I sold my company because one of my investors said that if I return his money, he’ll take me on a six week vacation to Southeast Asia. So I returned his money and we’re planning this trip, and I’m looking forward to it. So when’s the trip? That’s awesome. September. Okay, then we’re in June, July. So I’m listening to these stories of travel and kind of what’s going on. And I say Oscar, who’s watching after Visiontech? And he said, well, it’s funny that you say that. We’re hiring our first executive director. You should meet Tony Petrucciani. And that’s how I met Tony.

BEN: Wow, I’m so sorry.

TONY: Can you said who’s running vision? He thought was like, not Tony. Yeah.

BEN: Exactly. So they’re looking for somebody, has some background, maybe understands finances would be a huge plus, if not absolutely required.

PIGEON: So Oscar selling it to me, it’s kind of similar to being a banker, probably a little bit, you know, you got to do these due diligence reports and talk to investors. And would you have any interest? So yeah, sure. Let’s talk a little bit more. And what are the roles and responsibilities, expectations? And it got to me, Tony, and we went back and forth a little bit. And I decided to join on, we had our third child that August.

BEN: And Visiontech, you know, you didn’t really explain what Visiontech was all about. And we know what that is. But Visiontech is, is really what angel investing. Yeah. And so it’s maybe just explained it better than I can.

PIGEON: Angel investing is the process of making an investment into an early stage company that’s trying to commercialize an idea. So they’ve got a service or product or maybe a…

BEN: Early on, hasn’t been overwhelmingly successful, but has it good ideas, making some traction, and you guys go ahead and help invest, but also help guide them too, right?

PIGEON: Yes, absolutely. So then once you’re ready to check, you’ve got to make sure that you know which way the company is going, what decisions are being made, and try to guide them in a way that’s productive and creates value.

TONY: Some of them want guidance. Some of them, I don’t want to feel cheap here, but some of them just want the money. When you’re dating sometimes they just want the money?

BEN: No, no, they just want like certain things, but they don’t want everything.

PIGEON: Hey, let’s keep it above the table.

BEN: I thought I was trying to keep it really high. But Tony, you got involved with it, with Oscar but you’re also involved in what 50 companies? We talked about it last time a little more now. So you really like to help because you know, and I have had many conversations. But did that draw you to Visiontech? Like it’s not just the money, it’s really the helping and the money and trying to help these companies succeed.

PIGEON: Yeah, absolutely. I’ll tell you what really attracted me was this idea of talking to founders, brilliant people every day, learning about new markets and how they’re approaching it and what their critical thought is of breaking down a certain problem and how they’ve quantified a problem. That kind of pulls you in. I mean, it’s, it’s very much like Shark Tank.

BEN: If you like hearing visionaries, that’s what I got out of it. If you like hearing these guys that sit there, or ladies or whatever, sit there and talk to you about this is how I’m going to revolutionize the world. And once you hear some of those pitches, it’s pretty amazing stuff. A lot of passion, but looking at a problem so differently. Yeah, I remember what was it Listeria and trying to solve the problem with disease and vegetables? Yeah, and how they were going to do that, or, or the guy that, like, if you’re at a NBA game, he can feed you data to either your smartphone or your iPad, if you’re sitting out in the crowd, and all kinds of commercials and stuff. But it’s just like this very different way of looking at the world. And I find it fascinating. I feel like I’m just a little closer to greatness when I hear that. I know that’s kind of crazy not next to you guys.

TONY: I know you’re right. You can be involved with a company that does something incredible. And you’re like, I knew them when I was an early investor, as early advisor. Or, you know, like Ben does this a lot. He works with these, these teams come in and they pitch and he’s like, you need to do this, you need to consider this, what’s your answer for that, and then they go back and iterate. And, but by the time they pitch, they actually get money where they wouldn’t have if they wouldn’t have listened to his advice early.

BEN: Because they’re giving better data, right? They’re doing a presentation that resonates with the investors, because they want to know how they’re going to get their money back. Right? Yeah. And so when you help them, that is significant, because if a company doesn’t have enough money to actually grow, and to keep going, then they’re dead in the water, right? Got to live to fight another day. You have to live to fight another day. That’s true. Now, Tony, you told me one time that one of the reasons you wanted to do it, and I don’t have the statistics, right, is that in the Midwest, they create, and I’m just making this up 30% of the ideas, but only about 15% of the capital comes from the Midwest to support those ideas. I can’t remember, I’m throwing them out but it was the whole idea is that there was this disconnect between the ideas that are generated in the amount of capital in the Midwest that supported it.

PIGEON: I don’t have those numbers on the top of my head. But generally, a lot of the capital flows to the coasts, right, you think of these are east and west, New York and California are really the main hubs of where the majority of capital is invested. There’s a trend though, that the Midwest and other regions are starting to see more a little bit more traction, but you know, as just pure dollars going into Midwest deals and other areas where there’s a misalignment. Oh, absolutely. And I would argue that the Midwest is a great spot to put capital because we can be more capital efficient. I mean, just look at the cost of office space in any one of those locations on the coast, New Yorker or San Francisco versus what you could operate here. You know, a million dollar round out there might last you six months, million dollar round and in Indianapolis could last you 24 months, I would argue.

BEN: When we talked to Kobe, he made the discussion that if he stayed on the West Coast, he would burn through, it’s like, there was some like crazy statistic that he had. It’s like the square footage out in San Francisco. I’m making this up. It was $200 a square foot but in Indianapolis, it was like $12 or something. And he could make it last so much longer. And people who were in the Midwest, you would be paying what do you think, $200 for a good, like programmer on the west coast, but you could get somebody great here for 80 or 90, whatever it was.

TONY: I mean, we used to compete a lot in the Midwest against Chicago, like we lost a developer from Indianapolis, he moved to Chicago because he wanted to get you know, he was getting like a 15 or 20% pay raise. But I was telling trying to tell him, hey, the cost of living is going to eat that all up because yeah, but I just want to be Chicago. Well, for some people, that’s true, so that the set works. But you look at what San Francisco is, you know, living expenses is crazy. And so I think you’re seeing several companies that are opening hubs here, because we’ve got great schools like you and Purdue and Allstate turbos, Holman. I mean, you got a lot of places where we can get technical developers will come in and it’s it’s cheaper to live here. They’re going to be educated as well at school. I know there’s like this Oh, no, you know, this is a better school or whatever. But right, you’re getting these, you’re getting these people that can that want to be there from the Midwest, they got good solid values. And they don’t want to, they don’t want to pay $4,000 a month to live in an apartment. Right? So then they don’t have to, you’d have to pay him as much. Not that they’re not worth as much. But it’s like, you know, there’s just a difference to live saving the niccola.

BEN: And so you get involved with Vision Tech, you meet Oscar. You and Oscar started Vision Tech, or what did you come on later?

TONY: I came on just as so he asked her actually started under the name of Stepstone. Okay. And then he had some partners in that. And they were kind of reaching the end of their program, and they wanted to go a different direction. And so he took all of the stuff he was doing, he said, I need a couple of new investors, I’m going to rebrand as Vision Tech. And that was 2014. And I just so happened I had a connection with a couple of people that brought me in to meet Oscar, I ended up meeting Oscar. And that was a time when I was trying to figure out what I want to do when I grow up. Which I haven’t started that yet. So 2014. I got involved. That was six years ago, December, I think, is when I joined.

BEN: So you guys started to do like lots of pitches, and you started to look and deal flow is the number of companies that want to talk to you, right? Yep. And how much money did you guys raise in 2014? Or did you were you guys 10, 20? I can’t remember.

TONY: No, no, no, there was a smaller group of members. They didn’t invest really big in one company orthopediatrics was kind of their big thing. There was a heavy flavor from Warsaw, Indiana, which is the capital of the world. So they were investing in some more med device type stuff. MDD. When I got involved, it was kind of like, hey, we got you know, cloud software is getting really big, SAS model stuff. And so we kind of, we still do 40% Life Science, but 60% more other business, mostly technology. And it’s a little bit different game. So we got to a point where I think last year, we raised a little over, we invested a little over $3,000,00.

TONY: $3.1 million into 15 companies. So there’s an era right before Tony joined, there were 10 companies that received about two and a half million dollars. And one company had one investor.

PIGEON: That’s from 2009 to 2014. Ish.

BEN: Two and a half million. So not huge numbers. Right. Not especially not for an Angel fund or a fund. But go ahead.

PIGEON: No. And I think the philosophy back then was, you know, 10 companies should get you enough diversification.

BEN: I want to get back to that, but can you tell me when you invest in companies, you’re investing in a pool, right? And you’re thinking about that pool if it’s 10, one of them or two of them are going to go to zippo, right? Like what is kind of the mindset?

PIGEON: Actually, that’s where we’re at, though. Yeah, we were our numbers are right, there were to tell us.

TONY: Like the ACA and Kauffman Foundation, some of the groups have studied, like big hundreds 1000s of investments over 15 or 20 years. Yeah, they’re showing it like 50% or more go to zero.

BEN: So hold on, let’s just backtrack. And I’m going to get right back to you. So for the people that are listening, they’re sitting there going, now you actually invest in it, meaning like, you can throw money into the fund, which has a number of people who throw money in and then you decide which ones are good ones to invest it, then you could say, hey, you’re listening to all these pitches, are there any of them that you would like to invest in directly, and then you can write like a $2,000 check, or five or 50 or whatever. But in the fund, you take a very methodical approach to it and you say, hey, go ahead.

PIGEON: Well, so let’s reframe a little bit on how Vision Tech works. So Vision Tech is a group of about 120 accredited investors.

BEN: And an accredited investor means they make enough money that if they lose 20 grand they’re not going to go absolutely poor and live in the poor house right? Yep. So accredited investor is a very specific term.

TONY: And more importantly, they’re not going to sue anybody right?

BEN: Okay. They’re not going to sue everybody, like I believe that.

PIGEON: We got 120 accredited investors. We have a process that we go through and I will affectionately refer to my investors as volunteer check writers, okay. So they have to follow a deal through the process indicate a level of interest indicates some sort of line of questioning around what they’d like to see answered in a due diligence process, all the way to publishing and consuming reading a due diligence report and then deciding to write a check.

BEN: So you’ve got all these people, you got somebody that says, I got this great new idea. They give you a lots of information, these people will read that information will ask questions, because they may be pessimistic, or they may just have questions like, I’m not really sure how you can raise 500 cattle every week or whatever, it’s some crazy question, then you want to go ahead and investigate that, you do due diligence where you look at the information, ask questions, and then when you get to the end of it, you kind of make a decision, right? Hey, this sounds like a good idea and at that point, people will or will not write checks, correct?

PIGEON: They have a choice. Yeah, absolutely. So it’s a volunteer, it’s not a traditional fund, there’s a lot of funds out there, where you have an investment committee that gets together, here’s a pitch does due diligence and then votes, and then you write a check for $100,000, or $500,000, or some dollar amount, or fund might even set the terms of the investment. Right, negotiate. We’re typically not the group that will set the terms, but we’ll be the one that tops off the round, typically.

TONY: But that concept of a fund is, you’re committing so much money ahead of time, you’re like, Hey, I’m going to put $100,000 in this fund, $50,000, whatever. And that’s a lot of money for over two years and I don’t get a say, in anything where you invest, I’m just going to trust you guys. And then the Shark Tank side, which is what really we do is, you go look at them, and you go, I want to enter, I went out, and instead of just picking based off of watching the show for 15 minutes, they, you know, Ben runs a tough due diligence process, a lot of times, it’s 40 hours or more of investigation from sales and product technology, legal. I mean, the whole deal, publishes that report and then people say I’m in and it could be as small as a $2,500 check, we’d get some people to write $100,000 check. It’s not the typical thing where you think people are just writing a million or $2 million checks at our level. And then we put those all together now is that you make your own decision on every deal, you might do one a year.

BEN: And you lock up the money, meaning when you write a check, this is a new company, and it doesn’t turn over in six months or a year. So what I mean by locking up the money is you write a check, and you put it out there and it’s for 5, 6, 7, 8 years.

PIGEON: Yup. Average hold periods around four and a half years. I’ve talked to other angel investors that have had returns in nine months. I’ve also talked to investors that have had 10 years to wait. So you don’t have a liquidity event, a liquidity event is something that generates cash that returns back to the investor. And those liquidity events are either an IPO or maybe somebody’s…

PIGEON: public offering on a New York Stock Exchange or another exchange, go ahead.

PIGEON: Or another company acquiring them for cash, or you maybe you get stuck in that next company that makes the acquisition.

BEN: Man, you guys look so good, I want to acquire you because you’re going to be a bolt on to what I’m doing, that’s really going to make my company explode. So I’m going to give you X amount of dollars, or stock or whatever other item. Now the angel investing thing that makes it great different than venture capital, is that the angel is like an angel that helps you and guide you and provides advice in order that you can get to an exit, meaning somebody acquires you, or he go for an IPO. And so angel investing is very different. And I like it because you get to watch it grow. And that’s pretty cool. Give advice. And then at the end of the day, you get to participate in like that growth. And that’s pretty cool. Yeah. So now you got this company, you got Vision Tech, you’re a part of two and a half million dollars, you join, you raised additional monies. Can I ask how big the fund is nowadays?

PIGEON: Well, we don’t have a fund, we’ve been talking about launching a fund, maybe we should talk about that.

TONY: So when Vision Tech came in, we had invested a little over two and a half million, and we’re at over 21 million now. So in the last six years, it’s more and more substantial. Yeah. I mean, each of the last couple of years, we’ve invested more than two and a half million in just a year. And it’s interesting how you start getting some success and it snowballs and now people were getting better companies kind of deal flow, they call it but we’re getting more opportunities and better companies. And then and Ben kind of made reference to it here a second ago. But sometimes we get to lead the negotiation because we’re going to write such a big check that we get to actually negotiate on the terms. Exactly. A lot of times they’ll go like, you know, you’ve seen it on there. I’m going to sell 10% of my company for a million dollars. So they’re like, that means your company is worth $10 million. Okay, so how much were your sales last year? $6,000. I’m like, no. But so what happens you have to actually guide them and advise them. And you got to get to a point where it’s a good number, because they’re probably going to raise multiple rounds. So the next round, every round needs to go up and to the right, you know. :ike on a chart, if you’re looking at a chart, right, so we say up into the right, which is probably this way for the camera. So if I sold some percentage of my company, and my company is worth 3 million today, then when I sell next year, and we raise more money, it needs to be worth more than 3 million, right? Maybe 5 million the next time is like 10, or 15 million it keeps going up. The dreaded with a call down round is horrible, because now you’re selling a bigger chunk of your company at a lower price. And all the earlier investors are getting hammered. Hammered, meaning there was so much less they’re losing money, and they can’t get out because these are highly illiquid. Liquidity is I can’t go on the stock market and sell the shares.

BEN: Yeah. So when they’re illiquid, like, I always explain it that liquid, like water, it flows easily. So when you’re talking about something that’s liquid, especially in from a financial perspective, the money flows easily. If you want to sell it, it’s easy to sell it. But if it’s illiquid, it does not flow easily. It’s like a chunk of rock when you’re trying to sell it. And you got to sit there and wait and wait and wait and wait.

PIGEON: How many buyers are out there, how many sellers are out there and the quantity of buyers and sellers determines how liquid something is?

BEN: Yes. And you know, when we start talking about angel investing or venture, you lock up your money for a while. And if you’re even interested in such a thing, you’re looking for a fund or a group that offers the ability to write smaller checks, because we all know they’re willing to take bigger checks. But if you’re trying to get in and you liked this and you liked hearing about new companies, which I loved, I mean, did you like it, right, don’t you Ben?

PIGEON: I do, actually and the line of thought that we’re going down, I want to make just a really good point here. And that is you know, you can do this alone. If you’re an angel investor and accredited, you could do it alone, you could write a check for $25,000. That’s probably the smallest check that you could write if you did it alone, right. Part of the issue with that is that that’s not a size of a check that you get to negotiate terms. It’s also probably not a size of a check that will allow you to get something called major investor definition, which would qualify you for information rights. Information rights give you a right to get into the company financials, find out what’s going on on a periodic basis. And a $25,000 check probably isn’t enough to get you there. Usually, we see that around $100,000, maybe $50,000, depending on the size of the company and where they’re at. and commercialization, we see them as high as $500,000. 

TONY: But like, if you’re putting that much in an early stage company, you get a lot of rights, and you can tweak the terms. But if you’re writing a check, I know it sounds like a lot. $25,000 as an individual, but company is raising a million bucks or like it’s a two and a half percent, I don’t want to spend all my time talking to these these investors that invested 2 or 3% of my company, I need to take care of the big guys are writing a check for 25%. And those are the ones that are going to help me more, right, it’s going to be more meaningful like this, if I wrote a check for 10 grand, which is a lot of money, but out of a $2 million raise or a million dollar raise, it’s not so much. And then if I’m squawking at him all the time, like, hey, I want to know what’s going on, what was your expense on your rent last month, I want to know like that will distract the founder so much from hitting their goal, achieving their goals. So we try to protect them. So like with Vision Tech, we ended up taking the manager role. And so whether it’s a board seat or a board observer seat, or just information rights, we get that and then we send it to our investors, which we might have 40 people invest in a company. And then we insulate that founder.

BEN: So the founder only talks to one person, and instead of 10,000 – 12,000, whatever, you have 200, 300, half a million, whatever it is.

TONY: And Ben knows how to talk to these guys. He’s talking to all and he speaks their language and he says, look, you’re going to raise another round and we need to get this information from you so I can present to our investors so that they’ll invest in the next round and we’re going to hopefully make this easier, so he knows how to smooth it whereas somebody who’s like, really worried about their 10 grand and they’re calling all the time and pestering this person really. And then all sudden maybe they get mad, they don’t want to talk it’s like you don’t need that.

PIGEON: No and the other thing that happens too is if you do it alone, that kind of the flip side of that is, you’re alone and a year goes by and you have no idea where the company is at. You haven’t received any updates. You’re not really protected or maybe the company is using the investment of $25,000 of precious money. I mean, that’s a lot of money for some people.

BEN: Yes, absolutely. And we’re really trying to open people’s minds here to like the different types of investment stuff that’s going on. And angel investing is very cool.

PIGEON: And so 11 months go by, and the founder comes back and says, oh, it was great. This is all the stuff that we learned and our original hypothesis was completely wrong. Yeah, I know that. And if you don’t write a $50,000 check, we’re going to shut down the company in the next two weeks.

BEN: And that’s why especially when we’re talking about investing, this is a very risky proposition. If you don’t have one help, and if you don’t know what the heck you’re doing, and you don’t have deeper pockets, it could get really dicey. So we’re not saying, hey, invest in angel funding or venture capital, we’re just saying there are different ways to invest. But they have different risks associated with it. Yep.

TONY: So Ben has to not only kind of manage all of our investors, and we’ve had nearly 200 people write checks over the years. So he’s got 200 People asking him questions.

BEN: So when you have a k one of 900, that makes sense.

TONY: Yeah. And then, and then he’s got to go wrangle all the founders, some of which want to talk to us. Some of them are like killing it. And they just love telling us stuff. And some of them miss stuff, and they don’t want to talk to us. So he’s got a lot of different conversations to have.

BEN: Yep. It’s tough. You know, it’s not fun to have difficult conversations. But they got to happen. Yeah, yeah, you definitely have to have those. I mean, every company out there isn’t just crushing it all the time. You know, they’re having stumbles and Tony, we talked about you having a near stumble. I’ve had stumbles along the way. And if it was always up, then this wouldn’t be risky whatsoever. Yeah. So if you had 10 companies, you were talking about the fact that a couple of them may go to zero.

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