Genesis of Investors Collaborative
Several years ago I was approached by a group of local business persons to help them understand and get involved in early stage entrepreneurial investing. They were interested in ‘piggy backing’ their investments on mine while also learning my investment selection process. At the time I had no interest in having fiduciary responsibility for their investments and did not want to be burdened with accounting and administrative duties including collecting checks and handling disparate investment amounts among multiple companies. I also wanted each of the member investors to feel as though they were an integral part of the decision making process and could contribute their knowledge and insight on an equal basis with the others. The more I contemplated the structure of the entity, the more enthusiastic I became. I began to see how an investment group could be formed to avoid the pitfalls of the existing investment group structures. I also began to see how the entity could expand its reach through collaborations with other investment groups like banks, private equity, corporations and venture capital. Nurturing these relationships whereby deals could be exchanged or co-invested in could enable the entity to see deals it normally would have been blind to or unable to engage with. Additionally, I began to see how the members in the investment group could also collaborate with each other and with groups with whom they had personal relationships. Additional success would come from being “smart money” and therefore we would have to be selective as to whom we chose to join; they would have to be accredited investors who demonstrated business and/or technological skills. I began to see the potential and was excited about creating an entity to achieve our goals.
Early in the development of the operational guidelines for the structure it became apparent that the traditional legal structures would not work. I began to realize that a new entity had to be created that would spell out the operational guidelines for this type of collaborative investing. As a result of much discussion and fine tuning with my legal partners the Investors Collaborative LLC was formed. During this formulation process in which discussions were held with the initial members to determine their needs, we filled in the additional operational guidelines for the operation of the entity and the protection of all its members and their investment interests. As we began to attract new members, we periodically amended the agreement in order to accommodate issues as they arose; i.e., enabling senior executives to opt out of investments in which their employers see a conflict of interest, the ability to have trusts and other entities as members, etc. Some of the key guidelines that further differentiate Investors Collaborative include: the decision to invest would be a super-majority group decision and the entrepreneur receiving the funds would get a single check written from the entity. He/she would not have to chase down individual checks from members and pass investment papers and stock certificates for every investor. (I felt this would speed up the process considerably and make it much easier and deterministic.) Furthermore, members could withdraw their un-invested capital at any time and the collaborative would cooperate in helping them liquidate existing investments if they so choose.
Today, several years later, the Investors Collaborative has approximately 45 members and growing, has several members that are entities, has expanded its collaborative reach with VCs, accelerators, incubators, universities, law firms, other early stage investment groups, etc. It now has an investment portfolio that appears to have great potential and a growing base of capital to invest in new exciting companies. The groundwork has been laid for IC to become a major player in the investment community. IC recognizes this and gives back to the entrepreneurial community through mentoring services, and is currently creating its own incubator to enable exciting companies to reach their maximum potential.
I’ve been a member of Investors Collaborative for about a year. The IC is a group of accomplished, talented and focused entrepreneurs, technologists and businesspeople who provide equity capital and advise high growth early stage ventures. Week after week we gain exposure to a wide variety of exciting technology ranging from Blockchain to clean energy to e-commerce to social listening tools to augmented reality games. It is a smart, no nonsense group where diverse opinions help to uncover all sides of an opportunity including both risk and reward aspects.
I’ve been involved in the technology business for a long time. The IC brings together multiple interests of mine. Learning about a range of new and emerging technologies that may shape Internet security, shopping experiences or fabrication of intricate components, for example, is very exciting. This is generally followed by engaging in stimulating thought experiments, critical thinking and competitive analysis to understand the potential of these new ideas. Perhaps most rewarding is meeting, assessing and coaching entrepreneurs to help achieve mutual success. Of course, a successful exit means that we have done our jobs well.
Swimming with the Sharks
When you see a ship in port it not only means the end of one voyage, but the beginning of another. And so it is that my ship has come into port again, ending an almost three year journey. This was the fourth voyage where I filled the role of captain, pulling a crew together from different parts of the ship and taking the systems of the vessel up a couple of notches.
The role of the CIO is changing in many ways and like an old sea captain it becomes more and more difficult to find a ship where people are comfortable with you and believe you will function well on the bridge. Some think you lack the energy while others might feel you haven't kept up with the latest advances in the engine room or navigation systems. In fact, many think technology has advanced so much the ship can practically run itself.
Well I may find myself on the bridge of another ship one day, but in the meanwhile I have embarked on a completely new journey. Toward the end of last year I joined the crew of a pirate ship. Well, not really, but I'm not sure there is a good nautical analogy for an investors group. I suppose we're more like a independent fleet of fishing boats, casting our nets and hoping for a big haul.
I am now a partner in the Investors Collaborative. Week after week we evaluate different early tech based start-up companies to choose the ones we think are going to be winners. What sets this group apart from most is the collective brain-trust with a diverse cross section of disciplines and experience. To select the investments we draw from over thirty seasoned professionals with backgrounds in law, finance, technology, and a variety of verticals. I've only been a part of it for a few months but I can already see where this breadth of knowledge has quickly segregated the high potential candidates from the glitzy flash in the pan ideas.
Playing Shark Tank has been exciting, fun and a real learning experience. I am seeing some incredible innovations, new software, services and technology. There will certainly be no lack of material to write about.
This new journey may be more uncertain, with less clear direction and a much higher risk of return. But I am enjoying the wind and the waves, and the camaraderie. This role turned out to be quite a catch!
The Business Value of Smart Money for Entrepreneurs
“There are only two classes of investors in new and young private companies: value-added investors and all the rest. If all you receive from an investor, especially a venture capitalist or a substantial private investor, is money, than you may not be getting a bargain” Jeff Timmons, New Venture Creation
Entrepreneurship is very exciting. It presents entrepreneurs with the opportunity to fulfill their dreams and ideas by building something new and meaningful, which will ultimately, and fundamentally, become bigger than oneself in the hopes to better the lives of many people.
Entrepreneurship is also very challenging. Starting up is hard. You cannot do it alone. Your success depends on customers, management team, and a community of partners that will help you figure out the way forward, mobilize resources, and reel in business opportunities.
It has been my experience that as you execute on your entrepreneurial venture, many distractions will come along the way, sometimes disguised as a helping hand, which turn out to be deadly traps for your enterprise. One of the top perils for the entrepreneur is accepting money from investors that cannot add any value. Worse yet, reliance on those kinds of investors can be to be too short-sighted and money-focused. Rather than helping you, they will be crafting strategies to liquidate your venture and cash out at the point of greatest vulnerability for the enterprise that will emerge as the startup faces each new challenge.
In your entrepreneurship journey, the partners that you choose play a critical role in safeguarding and promoting the interests of your business, providing what you need to maximize a potential success. Sometimes these partners provide you with cash. Other times, and much more often, these partners should provide you with sound strategic advice that enables you to cut through the noise and advance your venture.
Len Hafetz, a successful entrepreneur, provides tremendous value and insight into the companies he brings to the Investors Collaborative portfolio. He helped us transition the leadership of our software development team during a very delicate period in the lifecycle of our business. In addition, Len has always provided practical advice that helped us define the company strategy during contested Board meetings. He sees right through crippling business issues, and he is very good at identifying and mentoring talented entrepreneurs. Moreover, Len was instrumental in rallying financial support for our venture when we entered a tight cash position.
The “value-added” portion of an investment rationale is priceless. Given the odds that entrepreneurs face, this – sometimes overlooked – dimension is what can tip the scales in your favor. If you are an entrepreneur building a meaningful business, you should never settle for anything less than “Smart Money”, which means capital, expertise, mentoring, and access to collaboration networks.
Entrepreneurs, please feel free to contact us and/or submit your business information below.
Prospective members, please feel free to contact us via the form below and please specify how you would like to be contacted.
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