Three Questions on Startup Culture and Investing Strategy with Greg Huey of Alliance of Angels
We may have similar names, but we come from different worlds. Greg Huey, the new program director of Seattle-based Alliance of Angels, has a business background and more than 10 years of investment and corporate development experience. He bears little resemblance to a certain Xconomy Seattle editor, besides having an avid interest in the local innovation community, a love of coffee, and a slight aversion to British food.
This is Huey’s first month on the job. He succeeds Rebecca Lovell, who became executive director of the Northwest Entrepreneur Network in February. Huey says his responsibilities at Alliance of Angels now include spreading the good word about the not-for-profit investor organization, attracting early-stage companies to present to the angel network, and positioning his group as “entrepreneur-friendly.” He also wants to coach companies on their business plans and presentations, and help angel members “feel more comfortable to step up” and lead investment deals. “Angel investing can be shoot-from-the-hip,” Huey says. “We want to provide a more systematic process in which to evaluate investments and portfolios.”
Before this job, Huey handled mergers and acquisitions and other corporate development for Hewlett-Packard in London for a year and a half. He focused on deals in Europe, Africa, and the Middle East. Prior to that, he spent six years as an investor at Frazier Technology Ventures in Seattle (2001-2007), and also worked at GTCR, a private equity firm in Chicago. He did his MBA at the University of Pennsylvania’s Wharton School, where he was a classmate of BuddyTV’s Andy Liu, a prominent entrepreneur and investor in Seattle. Huey is a native of Portland, OR.
I was particularly interested to hear how the economic doom and gloom of the past eight months has affected Huey’s outlook on early-stage investing, and what he sees in Seattle after being away from it for a little while. He noted that Alliance of Angels is coming off a strong year in which it made 36 investments, and five of its portfolio companies were acquired (including Insitu, which was bought by Boeing for some $400 million—Alliance of Angels’ biggest exit to date). And two weeks ago, the organization announced a new $4.25 million seed fund.
“We will focus on any growth opportunity,” Huey says, whether it’s in software, wireless, hardware, devices, or non-technology fields like coffee or nail salons. “We’re open for business. We have our first investment committee meeting next week.” And the first investment deal on Huey’s watch may very well come out of that meeting (which is for the new seed fund).
Here are some other highlights from our conversation:
Xconomy: Given your international perspective, what are your thoughts on Seattle as an innovation cluster? How does it compare to other regions?
Greg Huey: The U.S.—and Seattle—has got an entrepreneurial zeal and risk-taking [culture] and optimism that leads the world by leaps and bounds. In Israel and Europe, success is defined differently. In England, success is you go work for a company like British Petroleum. It’s like the 20th century [notion] of being an IBM lifer. In Israel, they would bemoan the fact that they don’t have really big companies. Startups would sell out early, or not have the management talent to grow big. The U.S. has a depth of people who want to do startups, who think that’s the zenith—not working for some big company. Culturally, it’s different. Purely from a startup and business perspective, the U.S. is in a different league.
I targeted Seattle because it has a more vibrant environment than Portland, from a business standpoint. Portland is a different market because of the companies that seed startups there. With companies like Intel and Tektronix, there is good semiconductor expertise, but not a deep base in software and wireless.
X: But some entrepreneurs say Seattle is too conservative, that startups and investors don’t take enough risks, and that people view success as doing something big at Microsoft. What do you think?
GH: If you talk to any of the venture guys in town, they’ll say that if an investment doesn’t work out, a lot has to do with whether they view it as a good experience. What was the decision-making process? How was their relationship with the management team? Maybe you understood all the risks, you had them on a whiteboard, along with “here’s what we can do to overcome them.” Having that open discussion with your investors is important. The key is what the experience was between the team and its investor base.
It’s true, the “team grade” goes up if someone is a former Microsoft executive. Which is a bit of folly, because you want a team that has created equity value before, or they’ve led a [profit and loss division]. And you don’t have dozens and dozens of people at Microsoft who have that experience. Another issue with Microsoft is its products are distributed through a monopoly channel, so it’s not truly an entrepreneurial model.
X: How has the recession affected the Alliance of Angels’ overall strategy, and that of the early-stage companies you look at?
GH: When I was coming back from London, everything was crumbling. But over the last two months, we’ve seen a lot of deals getting done, especially from some of our most active angels. I’m surprised at how active people are now in terms of making investments. I’m also surprised at the terms of the deals, [compared with] before I left. It’s becoming more VC-like, in terms of things like preferred shares. Also, companies are further along now [when they seek funding].
The overall market is going to affect our group. If the VC market is not there, that makes it more difficult as an angel to look at early-stage deals. But those investments are still possible. If you’re not able to raise the $5 million in venture, then what can you do with this $1 million? Can you pivot, can you become cash-flow positive, can you become attractive for larger companies [to acquire]? We see 20 new deals every month. There is always something there that you hadn’t thought of.