In Part 2, VisionTech’s Executive Director Ben Pidgeon is back to share how to carry out due diligence and evaluate companies, the different types of personalities you find in management teams, and how to avoid investment disasters.
Ben Pidgeon worked in banking for almost 20 years before becoming the Executive Director for VisionTech, 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 how he carries out due diligence on companies he’s thinking of investing in, how to assess market fit and product potential, and the importance of capital efficiency…
“People automatically think you just throw money at the wall, hey stocks I just throw money in there. You have to do some research, you’ve got to do some due diligence.” – Ben Jones
“In angel investing the failures come early and you’ve got to have the wherewithal to wait for the good stuff that’s going to be happening later down the road.” – Ben Pidgeon
00:53 – The risks of angel investing and how often companies go bankrupt.
04:25 – The different types of personalities you find in management teams.
07:06 – What to look for in a management team.
08:45 – The importance of being open to pivoting.
09:47 – How to assess market fit and the difference between a top down and bottom up approach.
14:52 – The three different categories all products fall into.
18:06 – The importance of trust and how a pitch can go from gold to lead.
21:05 – How many startups that pitch get funding.
21:45 – What stonks are.
22:55 – How many rounds of investments startups normally need.
24:54 – What it means to be capital efficient and the dangers of capital inefficiency.
25:30 – How well VisionTech has been performing.
27:45 – How to get state tax credits through angel investments.
31:05 – The benefits of having a member-driven due diligence process.
34:27 – Why Ben enjoys the due diligence process.
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BEN: Welcome back to part two of the interview with Ben Pidgeon, Executive Director at Vision tech partners. We heard about his personal path and how it’s not always a straight one. But it might just be luck. He loves being a part of the process to help startups obtain capital to grow and become successful. Join us now as he continues to bring light to some of the important aspects of finding great companies from deal flow and due diligence is oxygen, aspirin and jewelry analogy, and the hipster hacker and huckster. He shares a couple investment disasters averted in the two evaluation methods, either top down or bottom up. And we’ll hear the story about how you make a yurt or dance. Thanks for being here and enjoy part two of our discussion with Ben Pidgeon. What’s the percentage?
PIDGEON: Exactly! Over that, isn’t it? Yeah, I mean it well. So the numbers usually break down this way. 50% should go to zero.
BEN: So if you’re doing it on your own, and you are in one, the likelihood that you would go to zero is really,
PIDGEON: Really high and you actually, if you’re looking at a lot of deals and only pick one, your probability of seeing the next big deal and not investing in it is significant. Yes. So the way the math usually breaks out as if you’ve got 10 companies 50% go to zero. So five should just write off. Another three should probably get you anywhere from one to two returns on your money.
BEN: Meaning one to two means if you put in 20.
PIDGEON: You get 21 back.
PIDGEON: 25 Back or…
BEN: No, no, you…
PIDGEON: Get your 20 plus.
TONY: So no one at one, one extra and get your money back.
BEN: Just get your money back. So you put it in there, it doesn’t grow.
TONY: For five years and then they give you the same amount you invested back.
BEN: And we talked to you and I talked about the fact that the stock market, long haul everything together, it’s about 10% a year. So you’ve essentially put your money in and last five years of 10%. Yeah. And so you’re saying half of them go to 0.
PIDGEON: The next three or 30% should be about a one to 2x.
BEN: One to 2x. So you get your money back? Or maybe you get…
PIDGEON: A little bit more.
PIDGEON: Or somewhere in between? It’s not always perfect math like that. Yeah. And then the last, you know, one or two that are standing are the ones that provide you the overall returns that justify the entire portfolio.
BEN: And so that’s a fancy way of saying that those one or two will crush it will be awesome. Yeah, of all 10 that you invested in with the five going bad, the two or three that just kind of didn’t really do anything, they will make the entire return to be that 20%.
PIDGEON: 20-22 to 27%.
BEN: IRR, internal rate of return, yes. But…
TONY: Well, so like we say every one of our deals needs to have a potential for a 10x return, or we can’t invest it, you can’t invest in a bunch of deals that have a potential 2x and then don’t perform that well, you have to have the one winner. And so that’s why shortly after Ben got there, we were doing all the statistical reading the reports and doing the analysis, the sigma?
TONY: Bell curves, blah, blah, blah…
BEN: Sounds smarter, but…
TONY: Yeah. So what we did is we changed it. And that was what the industry was saying is you got to get a portfolio of 20. And that brings your likelihood of having one of those be a 10x or more goes up in the 90% range. Of course, it depends on your filtering and selection. So then that makes that whole portfolio work.
PIDGEON: All of the companies that pass through the filter have to have a really good management team, a large market and a product that can create value.
BEN: So that makes complete sense. So you have people that are running the show, if they’re crappy, it’s not gonna go anywhere, we all know a good coach is kind of more difficult to find. But if you don’t have a good coach, that’s a bad thing. And the market needs to be big enough. Because if you’re selling to three people, how are you going to make any money, right? But once you get through the due diligence of looking at the big market, what do you say? The management.
BEN: Management team, and you guys, you guys a spot a lot of spent a lot of time evaluating the management team. And then the third category is product.
BEN: Product. So you’re gonna have something that actually works, right?
PIDGEON: Yeah. And so I on the management team, let me dive into each one of those topics a little bit more the management team, we look for the hipster, the hacker and the hustler.
BEN: The hipster, the hacker and the hustler. Okay, now I’m interested. Go ahead, baby. Let’s hear this.
TONY: Ballroom dancing.
BEN: Oh, hey, mambo. I don’t even know.
PIDGEON: You’re going to splice in some music right now, right?
BEN: Uh, yeah, I guess we could go ahead. You start moving those hips.
TONY: We need to splice in Dan dancing.
BEN: Do you have a video? I do.
PIDGEON: I’m not gonna give it to Congress, but I will put it out on the internet.
BEN: The hipster is the hacker and the who?
BEN: Hustler. Okay, go ahead.
PIDGEON: Yeah, the hipster hipster is the one that’s got the idea. They’re going to be the one that says this is how we’re going to change the world. Guess what I know about it. Your hackler hacker is your programmer, the only one that gets stuff done the operations guy or gal. And then the hustler. Any idea what the hustler is?
BEN: He sells a big story but has fluff in it sales, the sales there. Yeah. So which one do you like? Is there one you like?
PIDGEON: Well, at certain stages?
BEN: I would say the hacker that is my personal preference. But go ahead.
PIDGEON: Certain stages one guys, we’re in all three hats. Oh, absolutely. Got it.
BEN: Completely understand.
PIDGEON: Is the company commercialized? Those responsibilities are spread out and the team has to grow. Right? There’s not many Steve Jobs. Right? There’s not many Elon Muks?
TONY: Any Elon Muks? Wait, let’s look this up. I have my phone here.
BEN: We’re drinking when we’re drinking an adult beverage. Sometimes it’s a little harder. Elon Muks, got it. There we go.
PIDGEON: So, it’s important for all those characters to kind of play out and take responsibility and create value ultimately for the company, investors.
TONY: The hipster, hacker, hustler hacker, Hustler, I’m a hustle, baby.
BEN: And you know, when we talked about the Entrepreneurial Operating System, which is just the way you run a company, we found that once you have the visionary and the operational guy, the the integrator, that having that person, the same person do both really well, is now highly unlikely to happen. Very tough. And so you, like what do you look at? I would imagine that depending upon what stage they’re in, and their company, would depend upon what you’re looking for in that person, because they’re gonna wear all three hats very, very early on, they have to, nobody else got to do it. But then when you get a little bit further, what are you kind of looking at for the management team?
PIDGEON: Well, I mean, if you want to see those, those personalities play out and you want to evaluate them in the due diligence process. And so that’s part of the function of due diligence.
BEN: Are you looking for all three then in the due diligence due diligence process?
PIDGEON: That’s why I mentioned earlier that it depends on what stage the company is in.
BEN: Okay, got, right.
PIDGEON: So you can, you can kind of go down each one of these paths, and sometimes you can’t, but it just depends on the stage of the company, okay.
TONY: And personally, it is personal experience, personal opinion only. But if you get one person that thinks they’re all three, I need to run for the hills. Because almost every experience I’ve had there is horrible. We like teams of two, maybe three, when you get into three and four, you end up getting one that’s like, I’m not really going to do this. I’m getting you know, I got married recently, I need to go get a real job. I can’t take this risk. And then they leave with a part of the equity of the company, the founders equity, and now we gotta figure out, do we buy them out? They’re a distraction. So I kind of like those. I like two person teams.
TONY: Maybe three. But the one person teams which I used to get enthralled with, you know, somebody come up, wave their hands, they talk really cool. When investing. Yeah, and then like, and then like, they’re horrible, because they don’t want any advice. And they, they just, they stick to their path like the pivot is a big deal.
BEN: Do you run into pivots very often?
BEN: We’re setting you up.
PIDGEON: That’s a setup. There’s a forecast right there.
TONY: You know invulnerable shadow, the pivot is very important.
BEN: Do you put your foot down in new directions?
TONY: Is that a toe pivot or a heel pivot?
PIDGEON: Depends or is it?
TONY: The hips?
PIDGEON: The hips? Absolutely.
BEN: So the pivots big Vana?
PIDGEON: Well, you know the pivots big because you kind of want the founder and company to have limited resources. I agree. Right? And so if you’ve got limited resources, you know, when, when you’re going to hit the cliff of running out of money, do you stay the course? Or do you try to pivot into a new market that might be more adaptable to your technology or your platform, or you’re…
BEN: Just a bigger market or just a bigger market that it’s easier to serve? Yeah, easier to access underserved or whatever? You’re absolutely right. So you’re looking at the hipster, the hacker and the hustler? And so you’re looking at all three of those. But you also had a couple.
TONY: I don’t know what’s going on here. This feels a little weird, but it feels kind of fun.
BEN: Why does it feel weird? So you’re looking at the management team? Yeah. And what they actually provide I forget.
PIDGEON: Market. We’re looking at the market.
PIDGEON: Usually we like the PMF Product Market Fit product market fit, right.
BEN: Are we just doing acronyms now?
PIDGEON: Wait, I’ve got one for the product so that we’ll get into it.
TONY: How about you know what TLA is? Too late? I don’t know. It’s a three letter acronym that means…
BEN: Three letter acronym. He did this the other day.
TONY: And he doesn’t remember. He just doesn’t remember.
BEN: I’m trying to forget anything you tell me.
TONY: You’re doing really, really well. Yeah, well, really? Yeah, TLA is a three letter acronym. That means really, because in this computer science side of things software side, we need acronyms out the wazoo only to be outdone by people who work with the government. And we’re not going to go there right now.
BEN: Wow. He just brings up stuff, whatever he feels like I love it drip drip.
PIDGEON: Drip drip market. So we like to respond to companies and CEOs and founder teams that can respond about identifying the market with a bottoms up approach versus a top down approach. So we’ll talk about a top down approach. We’ll get into storytelling mode here. So let’s say that I’ve got a bowling glove whenever we’re at the bowling club.
TONY: What the hell is a bowling glove?
PIDGEON: I’m going to billow gloves 300. Every time I wear it buddy might bear with me.
TONY: Okay, sorry.
BEN: So it’s an imaginary lace. There goes a unicorn.
TONY: I wear gloves when I do ballroom dancing. We were talking about a golf club.
BEN: Let’s talk bowling let him go with.
PIDGEON: Bacon scented dryer sheets. Would that be better?
TONY: Oh, I love bacon.
BEN: My short smell is like bacon.
PIDGEON: Alright, so fine. If I wear this bowling glove I’m going to ball 300.
BEN: Got it.
PIDGEON: And okay, we say how big is the market? The founder says Well, according to the Bureau of Labor Statistics, there’s $10 billion spent on bowling every year.
BEN: How much for clubs?
PIDGEON: Exact? And that’s the follow up question. So that would be the top down approach according to some big entity that does a lot of research, right? An annual spend is x, right? And then you start to say, Well, what does that number include? Right? Oh, there’s 8 billion of it in real estate.
BEN: 1.4. billion.
TONY: So you are talking about the Tam versus Sam verse. You do it? I don’t know what those mean.
PIDGEON: Tam versus Sam.
PIDGEON: I, you know, I’m probably…
TONY: The total addressable market versus service service.
BEN: What do you have access to?
TONY: Market, right.
PIDGEON: So, then you start to break it down into Okay, well, well, what’s the bowling shoes in that market? What are the custom bowling balls? And right, what about the jerseys and alcohol sales and all of the other items that go into that $10 million market and figure out that there’s the bottom up approach for the avid bowler that’s going to the bowling alley two or three times a week? And it’s really important to him or her that they bowl 300 each time. You know that market might actually be 10,000 people or 50,000 people. I’m pulling stuff out of the air. I don’t actually know. But so that’s your service reservoir.
BEN: Are small to understand exactly what’s happening.
TONY: Out of the air versus Jupiter.
BEN: So then you got this understanding that maybe there’s 10,000 people that actually like bowling gloves, and how many could they do? They got two hands, so maybe all of them by two hands?
TONY: No, no, no, no, no. The ambidextrous is way, way, overestimating.
BEN: Oh my gosh, you’re right. Because I’m thinking of baseball.
TONY: You know, it’s easy to strike if you throw two balls down there.
BEN: Pro Bowler for God’s sakes. Okay.
TONY: If you were a pro baller called you a Kegler.
TONY: Keglar is a term for bubbler.
BEN: Really? I didn’t know that.
TONY: You guys would know that if you’d ever picked up bowling.
BEN: So you got 10,000 possible hands. But yeah, maybe if they bought a second glove just because on Saturdays, they want something that sparkles. I don’t know.
PIDGEON: Well, and so then let’s let’s, let’s carve that out even more. I mean, what if the bowling gloves sell for $1,000? Right?
TONY: But If you get to 300 Every time I pay 10,000?
PIDGEON: How many of those 10,000 bowlers have the capacity in 10 grand to spend 10 grand.
TONY: Well, are they angel investors?
BEN: Maybe not.
PIDGEON: Maybe not. Maybe, maybe not. Who knows? That might be one of the tests.
TONY: That was better than one.
BEN: So top down or bottom up and you’d like to bottom up.
PIDGEON: Bottoms up approach is just a little bit more detailed because then you can get a sense of what and how they have critically thought through approaching the market gotcha problem that they’re trying to solve.
BEN: Okay. So now we got the management team, we got the market, what was the third one?
TONY: The product.
BEN: The product, the Golden Glove,
PIDGEON: The product we tend to when we look at about 400 deals a year, and you tend to categorize them into three different categories. Okay,
TONY: I like this one. Wait.
PIDGEON: Listen, oxygen,
BEN: Oxygen, so you absolutely need it. Aspirin.
PIDGEON: I’ll buy it because it solves a major pain point, right?
BEN: Is that the oxygen?
PIDGEON: No, that’s aspirin. That’s our pain point.
TONY: And we’re staying away from like opioids, because those are bad. Right? Okay.
TONY: I’ll buy it because I want it right. So a sort of product like a phone or a smartphone solves all three categories. Right?
BEN: Absolutely. Have to have seen a headline, right? Do you want it? Gotcha. Okay. Yep. Okay, so. So do you ask yourself that question? Every time I sprint?
PIDGEON: Absolutely Where does the value get created? Where’s the value chain? When does a customer see that first value? Mean? It might be a product where they pay for it, and they don’t see value for three months? How do we know that that value is attributed to that product or that solution?
BEN: And you know, this is a great point. Because if you’re talking about money and investing, it doesn’t matter whether it’s Angel VC stocks, bonds, or otherwise, it’s a way of looking at and really digging into what the investment is as far as like, how far can it go? Because if it’s absolutely necessary, who that’s important. If you want it, that’s really good. And if it solves a pain point, it’s like if you have the trifecta, that’s absolutely
TONY: You think about, we’re in a, arguably the longest bull market and forever
BEN: History. Yep.
TONY: History. Yeah, that’s forever. So, but, but when we start, when we have that first little bear market come in, yeah, there’s gonna buy jewelry, a whole bunch of the markets gonna stop dropping, they’re gonna go away. So if you’re investing in a company, which is going to take four and a half years, on average, to exit, and you think that they might run into a little bit of a problem, and they’re a jewelry company.
TONY: But if they’re, you know, if they’re an oxygen company, everybody needs them anyway.
BEN: It’s like toilet paper, I was talking about toilet paper, up or down market, you’re gonna use toilet paper? I mean, I don’t know about you. Do you just use your hand if you like paper?
TONY: This is why we don’t have alcohol in our…
BEN: In your board meetings.
TONY: Sometimes I think the board meetings might help, you know.
BEN: But then you gotta ask yourself the question, can anybody produce toilet paper? Great. Can anybody produce toilet paper? It’s like, if it’s a new idea, or different or hard to get into, I get it.
PIDGEON: Highly commoditized, though. I mean, look at that product, too.
TONY: You know, that reminds me of that movie. What movie? Was that? Where it was like the guy was like, eight minute abs? And he’s like, Oh, a seven minute segment. Yeah. And then, but you think about it. What if they took toilet paper and they just made it like a quarter inch narrower? The same number of sheets, but they could sell it cheaper? Because there’s not as much you can keep going? How far can you go?
BEN: Well, I get into soap because your hand would probably smell bad. And then you’re gonna have to wash your hands quite often. I’m just saying. Okay, so we went through.
TONY: So you know, he told me he goes to eat with the left wipe with?
BEN: Yeah. Well, I mean, that was the Middle East. Man. I hope I got it. Right. Because that would be very bad. You know, you told us a story about gold to lead. Can we?
PIDGEON: Sure. Yeah.
TONY: That was foreshadowing.
PIDGEON: That was foreshadowing that was the first pitch night I think that I ran at Vision tech. Right when I started.
BEN: So what was that back in 1987?
PIDGEON: Back in the day, gosh, you’re making me feel old?
BEN: A decade, less than me, two decades less than him. So that’s cool.
PIDGEON: So we have so there’s this element of fake it until you make it right? Right? You know, you got to make sure that you’re, you’ve got a certain element of confidence.
TONY: Just what stage he’s in.
BEN: Still faking?
PIDGEON: Still faking.
BEN: How to respond to that?
TONY: Why just thinking, I guess wife and family may watch this. And I don’t want to say anything.
BEN: Oh, I don’t think they are gonna make them watch that? We’ll keep going.
PIDGEON: So we had a founder give us a pitch deck and there was this logo slide. These are all the logos that we have.
PIDGEON: All the local companies that we’ve got that we’re working with, and it happened to be that one of the investors in the room listening to the pitch was very high up and responsible for a lot of the operations at one of those logos. And so in the middle of the pitch deck, he texts his tech guy, Hey, what do you know about these guys? They’re they’re saying that we’re working with them. pitch deck, the presentation finishes there’s a lot of momentum. It’s really exciting. He leaves the pitch, the pitch guy leaves the entrepreneur leaves the roomAnd as after he’s left, we all stick around and have a little bit of a discussion that happens afterwards.
PIDGEON: And so he raises his hand at the end of it and says my name is so and so I represent that logo in the middle of the presentation. I text my tech guy.
BEN: And whether we’re working whether or not we’re a company, we’re here in the pitch for…
PIDGEON: Absolutely. And the response was, yeah, he dropped off a pamphlet two months ago, we haven’t heard from him since. And all of the momentum in that pitch just left the room.
BEN: Because there’s a trust issue, right.
PIDGEON: It was a trust issue.
BEN: And so he’s up there saying that so gold to lead.
PIDGEON: Be gold lead, I mean, he had a lot of momentum leaving, everybody was high on it. So until that moment…
BEN: So you’ve probably learned some, like really cool things from looking at all these entrepreneurs. And some of them, you know, are full of what is it the hustler, you know, out there saying, Hey, this is how great it is. And then you kind of stick the pin in the bubble and explode.
PIDGEON: Yeah, that’s kind of the purpose of the due diligence, right? As you’re kind of enamored with a 20 minute pitch and think about, you know, think about this. These entrepreneurs practice millions of times telling this pitch over and over and it’s a very compelling and exciting story.
BEN: So if you’re like looking at all these, like, Guys, if you get 100 pitches, how many of them? Are you really thinking about investing in it?
PIDGEON: We’ll probably get through funding, actually, maybe six to eight companies a year after looking at about 400. So it’s very competitive.
BEN: 1.5. All right. percent. Wow. Yeah.
TONY: He’s a math guy.
PIDGEON: Math guy.
BEN: That’s pretty easy. Carry that one. You know what I mean? Just the mock. So it’s, it’s crazy, you know, when people automatically think you just throw money at the wall, hey, you know, stocks, I just throw money in there. You got to do some research, you got to do some due diligence. And you guys when you’re only you’re getting rid of half of them out of the gate already. You got to be extra extra careful.
TONY: That’s why we only invest in stocks.
BEN: And can you explain stocks? Because it’s…
TONY: Stocks are like stocks, but they only go up?
BEN: They only go up? Okay. I’ve never seen a stock.
TONY: Diamond hands.
BEN: He’s trying. He’s trying to be in.
TONY: A younger crowd here. But I’ll tell you, you have to have diamond hands when you’re angel investing, because there’s nowhere to sell it.
BEN: That’s true.
TONY: So what are you gonna hold? Till the end?
BEN: What are diamond hands? You told me.
TONY: Diamond hands like, what? Do you guys know that if you take a piece of coal and you put it under extreme pressure for millions of years?
BEN: Millions, just not next week, millions of years, okay?
TONY: You can make a diamond. Okay? So if you do your stock, if you grip a stock so hard that you won’t sell it, you hold it that that’s diamond hands, turns into diamonds, your hands don’t know about you.
BEN: But you gotta wait 100 million years.
TONY: Diamond hands and then.
BEN: Good to know.
TONY: If you sell it right away. As soon as it goes up, like $1.
BEN: Bad news.
TONY: That’s paper hands.
BEN: Okay, so you just kind of not in it for the long haul. Got it.
TONY: It’s like, it’s like giving somebody like, I don’t know, you do actually have coins to buy two pizzas or something? Turns out, they’re worth millions of.
BEN: 10000. That’s like, Yeah, like a thousand.
PIDGEON: In Diamond hands. You know, that’s true. Because in Angel investing, the failures come early. And you’ve got to have the wherewithal to wait for the good stuff that’s going to be happening later down the road.
BEN: And it’s crazy to think about the fact that they may come back a year from now and say, Hey, I need more money. And you’re like, oh, man, do I throw more money at this plan.
TONY: When you say may come back?
BEN: More experienced? I know.
TONY: Actually, we just had an exit. It was a four year investment with one round, they did one round and what’s around. It’s an investment.
BEN: They asked for money and it’s for one time.
TONY: One time, and a lot of times these guys come back, guys, girls come back 12 to 15 – 18 months later and get another round another round another round of investment. And hopefully, you know, it’s up to the right, right. Every time the company’s worth more. And so a lot of times, that doesn’t happen, but rarely you get that one round goes in. And it takes off. And that was awesome. I think Oscar took one round of angel investment in his company.
PIDGEON: No, he didn’t. He did two rounds.
TONY: But this company, we were in for four years, one round, and then they exited and we got a 5x return.
TONY: And we invested through our fund as well. Disclosure, Ben’s part of the fund?
TONY: You know why he was so successful. He wasn’t allowed to make the decision I was invested in.
BEN: I relied upon you. That’s why it’s so successful.
TONY: The investment committee and part of the Investment Committee, the accounting guy.
BEN: Counting guy oh my gosh, get all my money out now.
TONY: I’m very creative.
BEN: Exactly. Get my money out now.
TONY: Listen, you can write off whatever Yeah, something I don’t Okay.
BEN: IRC code.
PIDGEON: Got it. We’ve got a good accountant. KSM.
BEN: Okay. KSM Yeah. But that’s funny. That’s funny though you guys have had some good experiences already.
PIDGEON: Capital efficient, though is what Tony was going towards in there that when you can be capital efficient you can do that.
BEN: What does that mean capital efficiency?
PIDGEON: Capital efficiency means not burning money and giving yourself salaries in excess of, you know, what the stage of the company is choosing where to spend your, you know, investment dollars so that it creates value. capital efficiency would be burning through a lot of investor capital without reaching any significant milestones.
BEN: Gotcha. So, you guys do a good job for due diligence. Is there any kind of stats you can give me on what VisionTek has been doing as far as like, are they doing well, they have some good exits. I mean, yeah.
TONY: Thanks, man. Because I’m about ready to do his annual review. That’s what the hell you know, can you beat that out? Sorry?
PIDGEON: Yeah, yeah, no, we’re, we’re doing I would argue we’re doing really well. I mean, last year, we invested 3.1 million into 15 companies.
BEN: 3 million 15 companies got it.
PIDGEON: Yep. And we returned 4.3 million. Wow. So returning 4.3 Return named the company, not the same companies and different servers were invested in in prior years. But yeah, I mean, I, you know, when you when you have that kind of deal flow, and then there’s a lot of syndication that happens is probably another metric that we had
BEN: Which syndication, what does that mean?
PIDGEON: Syndication is when you participate with another investor in, in a round, so companies might be an investment group. So a company might be raising a million dollars, and one group might write a $250,000 check. And so they go out into the market of other angel investors and say, Hey, jump in the water’s warm, right. You know, here’s our due diligence, this is what we’ve done. This is what we like about the opportunity. And you should join us.
BEN: And I think that’s interesting, because I think the key to this is that, what was the statistic that you and I were talking about, which is if somebody is successful, the likelihood that they’ll be successful, again, is greatly increased, right?
PIDGEON: About five times more likely to return investor capital.
BEN: Exactly. So for you guys, you guys have been doing it since? Was it for the 14?
BEN: Okay, so 2014. So you’re six or pushing seven years now? And the thing is, if you’re still around, you’re returning some good money? How many zeros Have you gotten?
BEN: One out of how many?
BEN: So your, your 10%. And shoot, man, you know, that’s six years ago. So you guys are getting better. Your due diligence is getting better. You’re now amping up the actual deal flow, which is really cool. Yeah. So there are a lot of things going right, more money coming in.
TONY: Asterisk on that. Okay. Because Indiana, a lot of states are trying to encourage people to start businesses in those states, because those businesses that are successful generate a lot of jobs, create a lot of taxes for the state. Yes, please talk about this. So they’ve got this thing called the venture capital investment tax credit. So people who invest in high risk startup companies, there’s a state that gives you a 20% credit. So if I invest $10,000 in the company, I get $2,000 off of my state taxes, my federal but my state and so a lot of people like to ask the question, we’re doing a deal. Hey, Zack, get the VCI tax credit there. So you automatically get a 20% return so you can’t get a zero?
BEN: Yes, you can’t get a zero.
TONY: So technically we can’t get zeros if they’re in the state. Now there are a lot of companies we invest in, not a lot, but several that aren’t based in Indiana so they don’t qualify.
BEN: Now, do you have to be an Indiana resident to get that credit?
TONY: A resident and Indiana company now they’re starting to make that portable, which means if you’re from out of state, you get this portable, they did, they did make it so you can sell your tax credit. If you’re from Illinois, and you invest in the company, you could sell it to somebody from Indiana, there’s a bunch of rules around that but so they can make it so you can get a little bit of return even if you’re not from Indiana but the Indiana president gets most of the return.
BEN: And I love talking about taxes because one of the true value components of helping people with money is all about taxes. And like you said if you can invest 10,000 and 2,000 is already off the table meaning you’ve already got that back because you’re going to be paying your Indiana taxes no matter what if you pay it in your salary when it comes out every week or every month when you take it out. That’s just money in your pocket. And that’s amazing. And the one thing and I you know I don’t want to say Indiana is the best state anywhere, but you look at a lot of statistics and Indiana is very business friendly. And so they offer an opportunity for businesses to do better, and having that tax credit is a big win. So for all of our listeners, one of the things to think about is to look at the potential for credits in your state, to invest in states that actually offer those things if you can actually participate in that quote.
TONY: Well and it’s crazy, because it looks like a handout to the investors,
BEN: It does, sure.
TONY: But we’ve had cases where companies have re headquartered in Indiana, they’ve moved to Indiana, to get the tax credit for the investors. But now everything here is they’re paying taxes in Indiana, and all the payroll and everything’s going on.
BEN: You and I talked about the big billboard coming out of Chicago, Indiana, and it says, are you ill annoyed? Are you annoyed? Buy Illinois, right? Because a lot of people were moving out of Illinois, because it’s actually if you look at this, the statistics that it’s not a very good place to be doing business if you’re looking across the United States. So that’s very cool. So what are the kinds of crazy stories you got anything else to share with us as far as because.
PIDGEON: Gosh, where do we start? Tony? What’s at the top of your head? I could get into a bunch.
BEN: You got 50 stories.
TONY: I’ve already told stories. It’s your show dude.
BEN: My show?
PIDGEON: I don’t know, I really enjoy the due diligence process. I mean, it’s a member.
BEN: Is it learning about new companies that gets you excited?
PIDGEON: We haven’t, we haven’t gotten into the process much but our due diligence process is member driven. Right. So we have a lot of investors that participate alongside me and ask questions with some really interesting folks. And so one of the folks that we got to meet was a group that co-invested and led the round. And it was Chevron ventures. So we got to interview Chevron ventures as part of our due diligence process and said, What do you know about this market? Why is this
TONY: Mean Chevron’s?
BEN: Are oil and gas happy?
TONY: Okay. It’s a it’s an accent over a letter, the little? That’s a chevron? You’re talking about the oil behemoth?
BEN: Are you talking about the oil behemoth? Really? Yes. You know, Uncle Tom, he ran. What do you call it transportation? For sure.
TONY: You’re gonna talk about.
BEN: Uncle Tom?
TONY: No, because he was investing in this deal. He started. So he’s talking about
BEN: Oh, okay.
TONY: No, I’m kidding.
BEN: I don’t even know when to believe you or not. Back to you. Mr. Pidgeon?
PIDGEON: Yeah. So I mean, they, they gave us the kind of third party verified on some of the claims the founder was making around the market market size, what it needed, right? What was disruptive. We also got to ask him, How did you evaluate this technology and what else is out on the market? And so they were able to give us some examples of what else was on the market that was more expensive, not giving as much positive data around the stuff that they were using the technology for. So it was really interesting. Another really interesting person we got to interview as part of due diligence was one of the cofounders of the noc.com. David Liu
BEN: The noc? what’s that noc? Is it the wedding?
PIDGEON: Wedding planning site? So they sold for $900 million?
BEN: I heard about that years ago?
PIDGEON: Yeah. So interviewing him. And you know, he kicks off the call was saying, hey…
BEN: I’m getting married.
PIDGEON: I’m getting married. Say, you shouldn’t follow me. I’m a terrible angel investor.
TONY: Is that’s how he kicked it off.
PIDGEON: And then he quickly followed up with well, here’s, here’s what I like about the opportunity.
BEN: Did you did we? Did we? Or did you guys get involved with that?
BEN: No, you didn’t know.
TONY: Just another one. In the due diligence phase, we found out it was a it was a it sounds like a phenomenal opportunity. And during due diligence, we found out that the two co founders didn’t own the intellectual property.
BEN: Oh no!
TONY: That they were basing their whole company on.
BEN: Oh no!
TONY: And fortunately, if we wouldn’t have done due diligence, we just invested in it and all that money would have gone to somebody else.
BEN: Oh, no, that’s like crazy.
PIDGEON: That’s a good story.
TONY: Just not a good story? But we did, but we spent all the time to dig into it. And find that out. And it did cost us a lot of time because they they want our competition. You know, our screening competition went in front of our investors. Now we had to come back to investors to go hey, good news. Bad news. Bad news is they don’t own the IP. Good news is we figured it out before you guys wrote your check.
BEN: Oh, man, that’s totally crazy. So do you like the whole process? Because it’s just interesting. You get to hear about like, the new things going on the new industries and you never saw things like that. Is that what you like about it?
PIDGEON: Yeah, I do. i It’s a lot. It’s just fun. It’s the practice of critical thinking.
BEN: The practice of critical thinking. All right, so Tony, you’re out. Right. But I could see exactly, so I could see how that would be interesting. Like if you’re somebody that loves to learn new things.
BEN: And, you know, looking at problems differently, completely differently. I think That’s pretty cool. I mean, when we went to when you invited me to the pitch nights, you’re just sitting there going Who the heck thought up of this thing? Yeah, I thought this thing up. I remember what was it the diesel engine where they could save like 40 million gallons of diesel a year with this little thing they put on the engine. I’m like, What the heck? That’s awesome.
TONY: How about a little device that makes the ureter dance so that you don’t accidentally cut it?
BEN: What’s a ureter?
BEN: And what is the ureter? Can you explain it?
TONY: The ureter goes from your kidney to your bladder? When they’re filtering all the stuff out and apparently when they’re doing abdominal surgeries.
TONY: Laparoscopic, or other if you cut that thing, it’s bad.
TONY: Like you gotta you gotta call in a specialist. It’s a complicated surgery to put it back together. Hospitals, lawsuits, blah, blah, blah. So this, this guy came up with a way that you put a little electro stimulation blink and it makes it dance and then doctors like Oh, stay away from that.
BEN: No way in that crazy.
PIDGEON: It’s awesome that they have a beautiful business model. make really great founder. It’s so slick.
TONY: If only Kobe II my son would have come up with that instead of arc welding my damn grill to figure out how to stimulate the ureter.
BEN: Did you hear about that? Like art? Well, the girl I forget. But yeah, the ureter I’ve my ureter itches, you know?
TONY: I bet it does.
BEN: But there’s so many of these. If you guys are doing.
TONY: By the way, he’s got a teeny little bladder.
BEN: You gotta see me a little ureter.
PIDGEON: So, you know, when you have 400? Like that you see come through? Yeah. You know, quite a few of them have to be a decent idea. Right? It? Yeah. It doesn’t necessarily match all of the management and the industry and all that stuff. But they’re conceptually interesting, because didn’t we hear the one about Purdue, where they were flying over these remote control planes where I can’t remember
TONY: To check the power lines.
BEN: Check the power lines?
TONY: Because it was taken so long to do manually. you’ll expect drones were going to make it so they could do like five times as much. We saw that up at launch fishers. Yeah, yeah.
BEN: But that one is cool. But I thought there was something about crops too. It’s like the they fly these remote control planes over the crops and they could.
TONY: Oh the Purdue! Purdue had another one where they had sensors in the ground to check watertight status on the water and humidity all that for wine growing for grapes to get.
TONY: Yeah, I think they’re I think they’re still going to convince since then, since Yeah, I think they’re still I think they’ve raised some rounds. Yeah, we’ve we saw them early on that was a professor and some students.
BEN: But the thing is, though, is that he looked at the world so differently once you’re exposed to four to 600 of them a year and you’re just seeing all these really neat things that are going on.
PIDGEON: At resin Auto is another one the speaker technology company that we’ve got, you know, the
BEN: The resin auto?
PIDGEON: Resin auto, yeah.
BEN: What does that do?
PIDGEON: Speaker technology company that that converts the traditional speaker design is conical. And it’s got a magnet on one side and it’s in the…
PIDGEON: Other speaker.
TONY: So like round.
BEN: I didn’t know it was Speaker he’s dug it up. I was like someone who’s talking or you’re talking about a box. All right. Yeah, they actually put box if the sound Speaker Yeah, but it’s conical. And what was known as…
PIDGEON: Ultra Space, traditional one takes up a lot of space. Yeah, they have a flat technology speaker that that kind of compresses all the speaker that you need, into maybe 60% of the original depth
BEN: Dude, that’s great.
TONY: Think about speakers and cars. And they put a cool sound system in it that takes up all the space and the doors and the dash data and they get to crunch it all down.
BEN: Do this crazy man.
TONY: And then multiply that by how many cars Tesla’s are other than they might be?
PIDGEON: Yeah, and we got another one that’s really interesting as a flexible battery company that we invested in?
BEN: What’s a flexible battery?
PIDGEON: So they can produce a battery that you might wear or put in an IoT device, and it kind of enables disposable computing.
TONY: Oh my gosh, and the company that started that they created a Hanway
PIDGEON: What’s a Hanway?
TONY: Not two pounds?
BEN: I’m sending you’re taking you seriously? What’s the cows say? What’s the cows say? So, all this technology but all this technology is pretty cool. If you ignore my brother-in-law, which I’m, I don’t know, can you get a divorce from your brother-in-law?
TONY: Well, just talk to your sister.
BEN: Okay, I will.
TONY: But don’t talk to her too much. I don’t want you to convince her.
BEN: Okay, sounds good. But there’s got to be so many super cool ideas that are out there. And every time I go, I just kind of get what’s the right word reinvigorated by the amount of creativity that’s out there and for things to come solving highly complex, sometimes, sometimes incredibly simple. Ways to just resolve an issue and I think that’s so cool.
BEN: But I know we’re pretty far along and, wow, we we had some good coverage. Is there anything you want to say before you check, check out and say goodbye?
PIDGEON: No, you know, hey, check us out on vision tech dash partners.com Sign up for our newsletter.
BEN: Vision Tex dash partners.com.
BEN: And if anybody’s interested in investing, you can go to the website and probably contact Ben Pidgeon. And you’ll help them figure out how to invest in different companies or get them hooked on hearing some of the pitches or some other items that are available to you. And it’s pretty cool. You guys are doing some great work. I’m really happy to be involved with you, Tony, is there anything you’d like to say before we say goodbye?
TONY: Well, and if you need to know any of the dance moves that Dan’s learned over the last one year I don’t know the difference between a tango and…
BEN: I don’t either.
PIDGEON: It’s good choreography to figure out how to get into angel investing. We did it together.
TONY: Connected today.
BEN: He did. They say that you have to be pretty smart to be able to do that. But I’m having my dad’s now. Anyway, Ben Pidgeon thanks for being here. We really enjoyed it. Well, we’ll have this thing up and going and can’t wait to talk to you again about some of the updates. Thanks, man. We’re gonna wave goodbye. See ya.