Two angels alighted in Costa Rica last week, though not the kind with wings. These were “angel investors,” part of a growing brotherhood and sisterhood dedicated to funding the good ideas of bootstrap entrepreneurs.
The angels were U.S. citizens Phil Gross and John May, investors with decades of entrepreneurial and private capital experience – and with some battle scars from the dot-com bust to prove it.
They were in the country to meet with Costa Rica’s angel investors group, known as LINK Inversiones, and offer some friendly advice. The Tico Times caught up with them for breakfast and a short chat. Here are some excerpts:
TT: What are your impressions of the angels in Costa Rica?
JM:My phrase is, “An angel is an angel is an angel.” I could have been in Santiago, I could have been in Glasgow, I could have been in San Francisco, because they’re talking our talk. They’re trying to help entrepreneurs grow.
What about the Costa Rican entrepreneurs?
PG: As John said, they could have been in Washington doing what they’re doing. They have the passion behind what they’re doing. They’ve got the focus. An entrepreneur is an entrepreneur.
JM: I think (the group) is struggling with not quality but quantity. It’s a smaller economy, smaller city, and it struggles to try and get to critical mass.
What’s the difference between venture capital and angel investing?
PG: The difference is venture capitalists don’t take a lot of risk anymore.
PG: It is, it’s true, but they raise so much money that they’ve really become growth capital. The angels are the ones getting (the business) from an idea to customers, revenues, to where you could actually talk to venture capital and private equity. And very often, the value the angel brings is not money. It’s the experience, the industry knowledge, the contacts.Very often, that’s worth more than the cash.
What are some suggestions you would give to entrepreneurs that are looking for angel investment?
JM: First of all, disclose, disclose, disclose. Don’t be afraid of communicating your background, your warts, your problems that you’ve had, your failures, your successes. We need to know everything because we’re going to have a long-term relationship.
PG: Find some good advisers that will give you a hard time, that will challenge everything you do, that will question everything you say, to be sure that you’ve really thought it through.
JM: Another point is to always do homework on the investor, not just have the investor do homework on you. So many times the marriages don’t work because the entrepreneur thinks that just because they have money, that’s good enough. That’s not always the case.You have to have the right fit.
PG: You don’t want dumb money.
But what’s wrong with dumb money? I mean, money is money, right?
PG: Because dumb money will eventually blow up in one of several ways. (For example), you have an investor come up who says, “I really like what you’re doing, you want to borrow money for a year?” But debt is the worst thing you can do.
If they take equity, they’re on the ride with you. They go up and down with you. But they don’t have any leverage over you in terms of, you’re in default on your equity, (they’re) going to own your company. So you really need to understand where your investors are coming from. Are they in for the long term? Do they understand this is risk capital?
JM: That’s one of the other rules: Don’t oversell. (Entrepreneurs) think sometimes they have to dream big and make these big projections, and they’re just setting themselves up for a fall.
PG: I’d much rather see someone underpromise and over-deliver.
Are you looking to do some angel investing here?
JM: Everybody asks that, but almost all angel investing is local. All over the world. That’ll be what happens here first.You invest in people you know. (But) eventually, I think the follow-on financing can be out of border (from international sources).
PG: For example, let’s say you had a company that was beyond early product development and trying to move into the United States. Your group down here vetted parts of it, we thought we could bring value in the United States, then we might participate in that opportunity.
JM: The strength of what you bring is not just money, but information about the local economy, the universities, the infrastructure. That’s why I love meeting angels in other cities around the world. They’re wealthy and they’re sophisticated, but they’re giving their time as well as their money. That makes the difference between a rich person and an angel. They give time as well as money.