Title: Venturing into Angel Investing: A Path Not for the Timid
Buddy Zien, serving as Vice Chair at LiquidCool Solutions, shared his experience in entrepreneurship. Alongside a friend, they built a thriving business, becoming the leading owners and operators of district energy systems in the U.S., before eventually selling a substantial stake. A significant takeaway from this journey was the fact that carried interest would be taxed as capital gains instead of regular income.
This fortunate tax situation spurred Zien's interest in angel investing. Here are the criteria he follows when assessing potential investments:
- The Right Number of Founders: A trio is ideal, each bringing expertise in technology, finance, and sales. Four might be too many, while two might be too few.
- A Sizeable Target Market: A sizable market leaves room for pivoting any initial strategy that isn't working.
- Significant Value Proposition: A mere 5% improvement over the status quo won't cut it; a game-changing improvement is needed.
- Barrier to Entry: Something should prevent competitors from benefitting from your customer education efforts.
- Sound Business Model: Factories manufacturing low-margin products often require continuous financial support, which can crunch the seed investors.
- Experience in the Game: At least one founder should have past success to bring to the table.
Zien's investment journey has seen him make 20 investments, with disappointing results in 14 cases. However, his hope remains for the six still in the game, and three of them seem to be displaying real potential for significant returns.
A Whirlwind of Returns: Lessons from 20 Investments
Company #1 has developed innovative technology to cool electronic devices, a market driven by the rapid expansion of AI, data centers, and edge computing. The technology conserves energy, eliminates water consumption, and is deployable wherever power and connectivity are available. With 65 global patents and a robust sales pipeline, this company has transitioned well into the marketplace. Key lessons from this investment include recognizing the value of innovation focused on critical industry needs, and the importance of being prepared to pivot to market adoption when required.
Company #2 began by developing a B2C model targeting senior citizens aging in place, offering touch-screen terminals for entertainment, family connections, and health monitoring. However, this approach encountered challenges in terms of distribution and user sentiment, leading the team to eventually focus on group homes. The revamped approach has resulted in technology that empowers residents, supports operational costs, and features a recurring revenue model. With strong financial performance, this company appears well-positioned for a profitable exit.
This company illustrates the importance of adaptability and the value of a recurring revenue model.
Company #3 is working on a technology to enhance the insulation value of windows, creating vacuum-insulated double-pane windows with the thermal resistance of surrounding walls. While still in the development phase, this company has completed lab testing and is constructing an automated manufacturing line to showcase its scalability. The goal is to license their proprietary technology to a major glass manufacturer for mass production, tapping into a sizable, untapped market.
This company reinforces the idea of patience with investments in early-stage technology and the importance of steps like lab testing and demonstrating proof of concept.
Investing in startups can be rewarding and enjoyable, but it should not be expected to provide retirement savings.
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After being inspired by his tax situation, Buddy Zien sought opportunities in angel investing, valuing a trio of founders, a large market, and a game-changing proposition among other criteria. His investment journey has seen promising results in three companies, each teaching valuable lessons about innovation, adaptability, and patience. Curious about becoming a part of a business community, Buddy might ask himself, "Am I a fit for The Business Council's platform?"
