Conversations with Richard Chino, pt. 2
Richard Chino is passionate about investing in the business environment. In addition to his membership with the Pasadena Angels, Richard has been serving on the Board of ShipHawk, StaffRanker, and C2FO, and is a member of the Advisory Board of Chippmunk.
Today, Richard shares his views on how the Pasadena Angels fit in today’s competitive funding landscape.
Q, With so many options for today’s entrepreneur seeking funds – accelerators, incubators, super angels, crowdfunding – how do you see the Pasadena Angels fitting in?
RC: Often, I see us as complementary components of an investment round. We will rarely —almost never — say, “Okay, we love the company and we’re going to take the whole round, and no one else comes in.”
I’ll often advise applicants to seek syndication — get a lead investor first, or secure a big investor, super angel, or institutional firm — and then come to us to fill out the last several hundred thousand.” An institution, or a super angel, may be better equipped to make that first commitment.
If that’s where an entrepreneur goes first, and then to PA to fill out the round, I think that we move faster and the entrepreneur probably raises more money. It also helps us in terms of vetting the deal too.
Syndication gives the angels more assurance as more eyes have seen it. Also the term sheet has been already hammered out so it’s simpler on our end. We can talk to those who have done due diligence already, and that can bring about a quicker answer as well.
Q. Do you find yourself driving some of that syndication to fill out deals? Is that one of the values that Pasadena Angels provides?
RC: The important thing is that we’re not operating in a vacuum. We are very much part of the business ecosystem. For example, many of our members are also members of the Tech Coast Angels. The Pasadena Angels is part of a rich and diverse ecosystem of other angel groups. Our members are often members of other angel groups and have had deep connections with the venture capital world. That is particularly important in Southern California, given the lack of large venture capital firms based here. We have a good network
We want more angels to see the deal. We can learn from their questions, objections, and insights. If we find that a round needs $100K more, then we’ll reach out to our network of our friends and associates— whatever is necessary to help the entrepreneur raise that money. That’s a very important part of what we provide.
To illustrate this, I have a co-board member at a Kansas City company that works for a high profile VC firm in Northern California concentrating on Series A investments. That’s someone that I now can introduce to my CEO’s, because as soon as we’re done with our financing round, they’ve got to start thinking about their Series A.
I can introduce them to my contacts that write larger checks, and that exposes them to the questions they have to answer a year from now. They can focus their business to answer those questions they need to answer to close that next round. They also get advice to help them with the choices that they’re making. The more contacts that we can introduce to the entrepreneur the more people that can invest, add value, and give advice, typically for free. Our collective networks help to benefit everyone.
Q. Would you agree that syndication is not just about being able to bundle capital?
RC: Yes. It’s always more than just bundling capital. There is a bigger picture. Syndication is helpful because you have other people to talk to and good research to leverage.
The valuation is always a point of negotiation. We’ll take time negotiating and figuring out what the right valuation should be, and what the various terms should be. It’s much easier for an entrepreneur to say, “I’ve already raised two thirds of my ask on this term sheet, it is locked in.” And we can then quickly take it or leave it. Rarely, we say, “Those guys missed something, and you need to consider this.”
For the most part, the more complete deal terms are when they come to us, the easier it is for all parties.
Additionally, when we talk about connections, people who have incubators—They may be incubating the company, or accelerating the company, and then it will come to the angels, and then we’ll participate in that the deal. So there are a great many ways we might work with an entrepreneur to help their company to succeed.
Q. What do you see on the horizon?
RC: Suddenly, we’re all working in a global business ecosystem. The paradox is that large VC funding in our local area is not readily available. Adding to this, institutional money is hesitant to inject money into venture capital. So, it’s generally more difficult for budding entrepreneurs to secure funding.
While there are always challenges in this industry from the perspective of an investor—as well as from the perspective of someone who has a great idea and wants to build a great, new business—there are always ways around those barriers. Despite these challenges, entrepreneurship—and innovation— is thriving.
While venture capital is harder to obtain, there are more tools available which are dramatically reducing the cost of getting to market. The app industry is a good example of low barriers to entry. And of course, manufacturing costs are being driven lower through the use of global resources.
In the very near future, I anticipate that we will be able to help entrepreneurs launch successfully across multinational markets. If you combine international distribution, the growing interdependency of the world, the reduction of the costs of bringing products to market, low cost outsourcing, and the availability of cheaper manufacturing, we are witnessing the profound changes in how the world is doing business.
All of these things are allowing entrepreneurs and their investors to launch their products in a much more efficient way with smaller teams, and a lower burn rate. You can really launch solutions quickly in today’s market and anyone with a great idea and a sound strategy that meets a real need has a shot. It’s a great privilege to be in our position and to help start-ups reach their potential. That’s what’s most exciting to me about being an angel investor.