Lesson:Entrepreneur Turned Angel Investor with Josh Felser

Step #5 Entrepreneur Angels: The strategic path to investing and staying an 'angel'

Dave and I definitely had a strategic kind of focus to jumping into venture. We had a strategic path to jumping into venture, which is unusual for us. Usually we're kind of more impulsive but we did kind of plan this out and it has kind of worked out as we had hoped.

After we stopped working at Sony Pictures, who bought our last company, we took time off. We weren't sure what we wanted to do. I wasn't sure I'd work with Dave again. I mean were good friends, but I wasn't sure how it would work out. We each looked at doing some different things and we came together about six months after we left Sony. We decided to spend two years trying out investing.

By trying it out, meaning one, were we good at it? Did we not suck at it? One, were we able to find great entrepreneurs to invest in? Were we able to let go and not run the companies that we invested in? Did we like it? Did we like investing? Were we going to miss being entrepreneurs too much? Did we like investing? Just kind of what we wanted to do with the next five years-plus of our lives.

We just had to prove, lastly, we knew we had to prove to the world, we're not, Dave and I, are not your typical venture-back entrepreneurs. We didn't work with Sequoia or Kleiner or Benchmark. We worked with scrappy kind of like lesser-known VCs.

So, we couldn't like trot out some blue chip VC to help us figure this out. We had to go do it ourselves, which is probably our MO anyway. So, we kind of went out and we had to prove to the world we were decent at this.

So, we spent two years and I think about $1.5 million of our own money investing in all these companies. And after a year and a half was up, we're like, "You know what? We're not bad. We think we can do this. We think we like it. It would give us the balance we want and we won't miss being entrepreneurs full time, and I think we can raise some money."

We were conscious about how we were arriving at those decisions. We talked to VCs. We talked to one VC who wanted to sponsor us. What's funny is in the beginning we were after them, and then it took a little while to kind of make a decision and then we kind of didn't need them. We had folks, kind of like big LPs telling us they wanted to invest in us.

At some point we realized we could do it. We had no idea how much money we were going to raise. We were like, "Let's go out and raise whatever we can in six months. Whatever that is, we'll be fine." We raised $26 million and then we shut down the fundraising and we just started investing.

It was really kind of a carryover… We were well, the world knew us. I mean the entrepreneurs knew us enough to kind of give us decent deal flow. We don't have… We definitely approach investing as we did entrepreneurs. We're not the most strategic in how we setup our portfolio, where we have two from this industry and two from this industry.

We kind of invest in great ideas and great entrepreneurs and that's what guides our investing. So, we're a little impulsive, although we have more discipline now than we did before. So, things have kind of worked out as we had hoped, at least so far.

So, we raised fund one. We raised fund two on the backs of just having raised fund one. We didn't have much to prove because they were two years apart. So, it was pretty easy to raise fund two. We raised $40 million in fund two. We set out to raise that in three months. We were kind of like, "What can we raise in three months?" We were fortunate to raise $40, and so, fund three actually will be a different experience.

I hope it's just as fast, but we actually have to show that fund one worked. So, I think we feel pretty good about that. I think we're doing as well as they could have hoped.

So, I think fund three looks like it will be, when that happens in 2015, it looks like it will be a fairly straightforward process. And as you know, we have our alma mater as an investor. It's great to have Duke Endowment as an LP in our fund too. I hope they will continue in fund three.

I don't want to lose the angel in the definition of who we are because, well, not all angels are experienced and honest and authentic and all the things we look for. But I think the classic definition of an angel is someone who has been there, someone who is going to be active, someone who you can trust that has your back. We want those qualities to still live within us and we want those qualities to be in our brand.

So, we want angel in the name, beyond that, I mean we have to have institutional money. I guess, Institutional Angel is probably as fair a definition. We're more angel than we are VC. I'll say that.