Bill Godfrey’s five criteria for angel investing
When he was 30 years old, Bill Godfrey told his wife that he didn’t like the feeling of “having a job” and that he wanted to do something different. If his life were a television sitcom, this would be the moment when his wife gives him an “if-looks-could-kill” stare that puts an end to Bill’s entrepreneurial foolishness.
The year was 1998 — still a couple of years before the dot-com bubble bursting — and Bill had done very well working for nearly eight years at Software Artistry throughout the company’s rise to prominence and ultimate acquisition by IBM Tivoli, so it’s possible Bill’s desire to strike out on his own was received more as inevitable than abominable.
Along with fellow Software Artistry alumnus Rob McLaughlin, Bill put half of his net worth into a bank account and they bootstrapped their new venture, marketing automation software company Aprimo. Twelve years later, in 2010, Aprimo was acquired by Teradata for $525 million.
Following two unusually large friends and family funding rounds of $4.5 million and $9 million, (friends and family funding rounds are usually in the five- to six-figure range, according to VentureBeat, depending on who your friends and family are), Aprimo attracted venture capital from MK Capital out of Chicago and Sigma + Partners out of Boston.
The two investors couldn’t have been more different in terms of style, Bill explained. While Mark Koulogeorge of MK Capital was very technically skilled and liked to explore most every detail, Bob Davoli of Sigma + Partners decided to invest after getting to know Bill during a 30-minute personal conversation.
“If you have a good business you can always find people willing to invest,” Bill said. “The hard part is choosing the right partners.”
If he had it to do over again, he’d keep the same partners, but take less money.
“At Aprimo, we took on too much capital,” Bill said. “We could have gotten to a similar result for half the capital. It ended up being a good outcome for everybody, but I didn’t have the experience to recognize that we were taking on too much money at the time, and with so much capital you can make some unwise decisions because if VCs give you money they expect you to deploy it.”
Is it necessary for startups to raise millions of dollars?
Bill says not necessarily. He recommends taking on smaller increments of capital and re-calibrating the financing and capital structure at each step along the way.
For the past four years following his exit from Aprimo, Bill has been seed-stage (second money in after the founders) angel investing in software-as-a-service companies in Central Indiana under the name 4G Ventures. The name is an homage to his four children — four Godfreys.
While some of Central Indiana’s well-known angel investors take pride in high-volume investing with portfolios including up to 50 investments, Bill has a different approach. He wanted to invest in fewer companies in a much more concentrated way.
To date, he has invested in nine companies in the range of $250,000 to $1 million, and he sits on the board of seven of them. He is an active investor who enjoys helping entrepreneurs and management teams figure things out, assisting with sales and marketing strategies and attracting talent.
“My preoccupation in life these days is helping entrepreneurs achieve their dreams, and hopefully guiding them to avoid the same mistakes I made,” Bill said.
Here are Bill’s five criteria for angel investing:
- Strong, trustworthy management team. This is the single, most important evaluation criteria.
- Total addressable market must be sufficiently large.
(It doesn’t have to project to a $500MM exit, Emerging Threats was $50MM and Bill invested.)
- Solution needs to be a must-have, not a nice-to-have.
(There are a lot of good ideas out there with no urgency to buy, Bill looks for urgency, buy now products.)
- SaaS revenue model and a renewal rate > 90%.
- Realistic valuation and terms.
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