Z-Blog

Last week, when the House of Buccellati and ZINO Society hosted a private jewelry showcase to benefit the Seattle Opera and Pacific Northwest Ballet, four centuries of exquisite jewelry design met four decades of fantastic glass artistry when Dale Chihuly stopped by to peruse the collection.  Dale and the rest of the attendees were all impressed with the amazing workmanship and quality of the beautiful jewelry and silver collections that we saw.  Seattle Opera and Pacific Northwest Ballet received a 20% donation of the price on any of the pieces sold.

John V. Rindlaub, Chief Executive Officer, Pacific Northwest Region, Wells Fargo took the podium at the ZINO Society Roundtable Meeting held on December 11, 2008 at Graham & Dunn. John provided a painful overview of what has occurred in the financial markets that led up to “the day money stood still” this September.

John explained, “Value has been lost in every asset class: equity, commercial real estate, antique cars, gold, and oil. There was too much money chasing every asset class. Excessively easy money created an inevitable return to realistic value.” Where were The Feds during this time? “There must have been benign neglect,” John stated.

The title of John Rindlaub’s keynote address was Back to Basics. His back to basics message was clearly illustrated when he answered a question from the audience, ”When will you start lending money again?” John quickly replied, “When you can show you can pay it back.” He went on to say that Wells Fargo lending has grown 30-40% in the Northwest Region and is one of the few banks with a AAA rating.

Cathi Hatch, ZINO Society CEO, joked that John, at Wells Fargo, “in the banking market today is one of the last bankers standing,” though a couple of other bankers in the audience from JP Morgan and Foundation Bank begged to differ.

“If you have $1-5MM you can control a deal” -Michael Bulter, Co Founder Cascadia Capital

Michael Butler, co-founder and Managing Partner of Cascadia Capital, spoke at the ZINO Society Roundtable Investment meeting fresh off a trip from London and New York where the financial news was grim. Even with all the bad news he said, “This is the best of times for Angel Investors, with deals available with lower valuations than we’ve seen for awhile with reasonable ownership offered for smaller amounts of money. If you can invest $1-5M, you can control a deal.”

He predicted that we would see two types of lenders, large behemoths and small boutiques. He went on to say that in 2006 there were 10,000 hedge funds that had two trillion dollars in assets and now there are only 6,500 hedge funds with $1.1-$1.2 trillion in assests. He went on to discuss that private equity markets are no better off. In 2006 PE markets were at $186 billion and in 2009, there are projected to be between $60-80 billion. To demonstrate how “bad is bad”, Michael reminded us that during the last market adjustment in 2002 the PE markets fells to $33 Billion.

He also said that current opportunities in the equity markets include:

1. Strategic investments
2. The angel community especially the Vancouver-Seattle-Portland corridor
   • Mispriced assets
   • Companies that want to go from private to public
   • Clean Tech and alternative energy
   • New Media
   • Software as a service

I attended the TiE Funding Forum in Bellevue last week and was very happy to run into several entrepreneurs I knew from the ZINO Zillionaire Investment Forum who were also pitching their businesses at the TiE Forum. Guess what…they both won awards that evening! Orelle took home the prize for “Most Likely to Succeed” while Alerts.com won for “Most Innovative”. I really like both of these guys and I’m glad they are being recognized by the entrepreneurial community.

The audience also enjoyed some Q & A with panelists Bill Bryant (Partner at Draper Fisher Jurvetson), Len Jordan (Frazier Technology Ventures), Naveen Jain (Founder and CEO Intelius) and Mike Mathieu (Chairman and Founder Front Seat). I’ll post more about their comments later this week.

I also had time for a drink and a chat with Jeff Davis of Gogomo, winner for “Best Investment Opportunity” at ZINO Zillionaire this year. Seems Gogomo is on a winning streak lately: Seattle Business Monthly just announced in their December 2008 issue The Best of Business 2008 that  GoGoMo was one of three startups recognized  for the “Best of Startups” – specifically Best Wireless Technology . Go, Gogomo! I am looking forward to seeing them again this Thursday at ZINO Society’s December Roundtable Meeting, to share more Gogomo news with ZINO Society investors.

Just like all of you, we are taking a moment this week to think about what we are thankful for. This may seem difficult in the midst of challenging times, but there are still plenty of blessings to be counted.

Here are some of the things we are thankful for at ZINO right now:

• For our members, who are demonstrating their commitment to angel investing and to ZINO Society, even during economic uncertainty.
• For the start-up companies, who are buckling down, toughing it out, and keeping their visions alive.
• For our sponsors and partners, who have supported us in producing everything from investment forums to canine soirees.
• For our coaches - with hearts of gold and the patience of saints, who have gone out of their way again and again to help entrepreneurs find success.
• For all the great dealflow that's been coming our way in recent weeks and months.
• Because the "economic crisis" is opening dialogue and communication in the business community, and encouraging a culture of sustainability.
• Because we live and do business in a unique corner of the world, where the culture of innovation and determination has spurred amazing growth and ideas in so many different industries.
• For our wine partners, for helping to ease the pain of the downturn.
• For our wonderful teammates: Cathi, Mary, Lori, RJ, McKenzie, and Julian.

The other night while at a ZINO Society port wine and chocolate tasting, I was seated across the table from a certain Seattle Chocolate Maker and his Angel Investor. It was a beautiful sight to behold, full of mutual admiration and affection.

This particular Angel invests in 4 to 5 companies a year in varying amounts, sometimes investing the minimum and sometimes as the largest investor in the company. He chooses companies based on his interests; in this particular case, chocolate. I mean who doesn’t like chocolate? Some of the companies get only his financial support while others, including the Seattle Chocolate Maker, get his full attention. He is actively involved with this chocolate business.

The Chocolate Maker is also passionate about chocolate, as well as sustainability and fair trade. His chocolate company is growing and receiving national recognition.

Together, they appear to be a match made in angel heaven.

Studies have shown the best time to start a new business is in a down economy. Some of America’s biggest companies began during economic downturns.

A few examples throughout our history:

1873-Coors
1891-Wrigley
1896-IBM
1907-UPS
1908-GM
1923-Walt Disney Company
1938-Hewlett Packard
1948-Toys “R” Us
1960-Domino’s Pizza
1975-Microsoft
1982-Symantec
1991-Nantucket Nectar
(Inc. Magazine May 2008)

Now is the time to be on the lookout for the next great company. As venture firms are less willing to take on seed and early stage investments and valuations are down, Angels can get more value for their money in these companies. For those that desire it, there is the opportunity to get directly involved with companies they invest in. It is also a great way to diversify a portfolio.

While Angels can invest on their own, belonging to an angel group provides a myriad of benefits, including deals that are prescreened and coached. Angel group members are also able to co-invest and share due diligence. Some Angel group members say the social aspect is equally important to them, having the ability to interact with other investors they may not meet otherwise.

Despite the recent economic downturn, Angel group membership across the country has remained steady, with some groups seeing slight increases. If you have ever considered becoming an angel investor there is no better time that the present.

ZINO Society is a member of a national industry group, the Angel Capital Association, and on October 14, 2008,  the Chairman, John Huston, and Executive Director Marianne Hudson sent the following memo to member groups which I think is certainly worth sharing more broadly.

During today's market turmoil there are so many faux savants supplying advice that it might be wise to follow George Bernard Shaw's oxymoronic suggestion to "Never take anybody's advice."  In deference to Shaw we will not dispense advice about how to navigate today's uncharted waters.  Instead, we want to reflect on what attracted most of us to become angels at the outset.  This reminder might be helpful as we each think about how we will comport ourselves over the next few quarters, as we're sure you will be discussing with your member angels over the next 30-60 days.

Often sophisticated angels refer to themselves as "mentor capitalists" or even "adventure capitalists."  Elevated levels of uncertainty and ambiguity caused by the careening capital markets have heightened concerns about capital availability, even with tightened terms and conditions.  Yet, in the near term, many entrepreneurs will likely cherish investors' experiential capital more than their financial capital.  This is because their venture's success has never felt so uncertain. We share their desire to build outstanding companies.

Our ACA members who have great mentoring skills have been given a truly extraordinary chance today to take the spotlight, lead ventures through this commotion, and become local heroes.  Likewise, for our adventurists who get energized by the thrill of bringing a new product or service to market, the daunting challenges of today's business arena may not reappear in our lifetime.

Angels Know About Turbulence

Studies show that on average angels are 55 years of age, so most of us worked through the 1981-82 recession, and many also endured 1973-1975.  Younger entrepreneurs understand intellectually the criticality of astute working capital management, but not like those who have previously been forced to dampen cash burn to a mere flicker in order to survive.  Our experience is suddenly more valuable than ever.  It's a great time to transfer our knowledge to the next generation; it's incumbent upon us to do so.

It's Time to Lower Our Altitude

Despite their desire, many of our members are immersed in their primary business.  In this economic climate they must focus fully on their full-time vocation.  However, a large number have more time available - we can adjust our schedules to help our portfolio companies.  Now is the time for us to descend from our 40,000 foot perch to get more deeply involved.  Surely helping a venture extend its runway to outlast both its competitors and this recession will generate a level of psychic income vastly exceeding that from our leisure-time activities.

Our members have already achieved financial success to the point that many are more desirous of making a difference than merely making more dollars.  The chance to significantly impact our local entrepreneurial community was a major reason we joined an ACA angel group.  The quarters ahead could provide us with unprecedented rewards for assisting our entrepreneurs.  We hope you will seize the opportunity to come to their rescue!  (For one set of ideas, you may want to review the " Stand Up" memo from John May.)

Sharing Information With Each Other

One of the best things about the angel group movement is the willingness to share information and ideas with other angels, and now is one of the best times to do so.   Attached to this memo are articles, tools, and links that may be of use to you and your member accredited angels as you plan your next steps during this current economic crisis.  You'll note that many of the articles reflect a variety of opinions about what will happen with the economy and what the impact on, or reaction of angel investors, will be.  Please feel free to review the attached materials and use what works for you and your members.  If you have other ideas, articles or materials you'd like to share with ACA's membership, please forward them to Marianne (mhudson@angelcapitalassociation.org) and she'll make sure we get additional information to our membership via our Web site.

   Materials - Toolbox: (click on the title to link to the document)

   Stand Up Message from John May

   Ideas for Angel Groups in the Current Economy

   Portfolio Company Discussion Outline

   Articles, Blogs, and Podcasts:  (click on the title to link to the material)

- Sequoia Capital Rest in Peace PPT (Message to CEOs)

- Letter from Ron Conway to Portfolio Companies

- Patricof:  Don't Burrow Into a Dark Hole

- Frank Peters Show - Market Meltdown? with 3 Angels and an Entrepreneur

- Business Week: Why You Shouldn't Panic

- Be Glad the Valley IPO Market Has Dried Up

- Knox Massey Blog on ACA SE Meeting in Savannah

- Is the Economy Impacting Angel Investments?

- VCs to Entrepreneurs:  Seed Stage Startups OK.  Others?  Not so Much  

In today's New York Times is a short article talking about venture capital investment being down 7% in the third quarter, passed along to me by ZINO Society Investor Roundtable member, John Morris:

http://bits.blogs.nytimes.com/2008/10/18/venture-capital-investment-down-7-percent-in-third-quarter/?ref=technology 

It is interesting to note that although overall venture capital investing was down seven percent, investment in biotech and medical device companies climbed 10 percent, and funding for clean technology start-ups was up 14 percent. This is good news for ZINO Society's upcoming ZINO LIFE: Life Sciences Investment Forum scheduled to occur February 24, 2009 and ZINO Green Socially Conscious Investment Forum scheduled for Earth Day, April 22, 2009. We look forward to continuing to present strong investment opportunities that are especially of current interest to angel investors and venture capital investors in both of these business segments.

John Otter, ZINO Society Roundtable Member, forwarded Warren Buffet’s article to us to share along with this comment:

“A great opinion in yesterday’s NYTs, written by Warren Buffet.  We’ve all heard and in most cases, experienced the bad news over the last few weeks in the credit and equity markets.  Warren, in his true wisdom offers great cause for optimism.   Buy American.”

See the whole article here.