BIO: Sean Glass is a serial entrepreneur. In September of 1999, Sean helped co-found the Yale Entrepreneurial Society, starting a culture shift at Yale that has led to the university being much more supportive and encouraging of student entrepreneurial activity. In March of 2000, along with Miles Lasater and Mark Volchek, Sean co-founded Higher One, an online financial services company focused on serving the higher education market. The company raised just under $17MM and is profitable serving a market of over 1MM college students at over 95 campuses. The company was #85 on the Inc. 500 list in 2007. In 2007, Sean helped found Pikum, a social gaming business. Pikum raised seed financing from First Round Capital and plans to launch in 2008. Sean left Higher One in January 2008 to join Pikum full time as Chairman and Chief Strategy Officer. Sean continues to work with Yale through his work on the Yale Entrepreneurial Institute, and also works with young entrepreneurs through angel investing and mentorship. Sean enjoys playing poker and has even written and self published a book on how skills that are used in poker help as you’re starting a company.
1. What range of investments will you make in a startup? £50-100K? £100-200K, etc?
I invest through a vehicle called Top Floor Capital – which is basically composed of the guys I founded Higher One with. We have about $500k allocated to investments over the next year to two. We’ve done small pre-seed ($25k) up to about $125k. Since I’m the one guy out of the group who’s in London, we have tended towards $ denominated deals (that’s where our wealth is and it’s become worth a lot more in the UK the last 2 months).
2. What sectors will you definitely invest in right now? E,g, Consumer or Enterprise etc?
There’s never a “definitely” – we first assess the team, then the business opportunity, then how we could add value. We’re not just doing the investing for the money but because we like working with entrepreneurs and using our networks and knowledge to help them achieve their dreams through the creation of a new business.
3. What sectors will you definitely not invest in right now?
There aren’t sectors we’d avoid other than those where we have no knowledge and don’t believe we have someone in our network who does have knowledge. For instance, we recently passed on a business that was going to build biodiesel electricity generation plants. Not only do we not understand the tech, we don’t understand the supply chain, financing risk, etc…. so we can’t assess the price vs risk and I doubt we would have been super value added investors.
4. Outside of investment, what “value add” do you think you bring to a young company or early stage team, e.g. is it you expertise, network, what?
We raised $16.5MM from Higher One before we reached profitability and recently did a leverage re-cap where over $100MM was raised. Out of the initial money, about $8 million was from angels, so we have lots of connections for early stage financing. The group brings very good knowledge of operations, sales, marketing, banking and payments tech etc. Generally we can get to just about anyone you would want to know through 1-3 connections (like the CEO of JP Morgan Chase).
5. What combination of elements do you look for in the companies you choose to invest in? For instance do you look for people who have a sense of fun, a great individual and/or a great team, or an idea relevant to your own experience? What?
I personally look for a bias to action with the founding team. Do they talk, or do they do? After they do, do they assess, change, and do more? Are they frugal? Are they passionate about the business or just out to make money? Is there a heterogeneous mix of character strengths and personalities amongst the senior founding team? If they’re a young team, I try to see evidence of successful creation of things in the past (be they ventures or student orgs or whatever). At least 1 very strong technical team member is a big plus if the business will rely on creating an advantage through tech.
6. Do you participate in syndicates/networks or in a round with bigger VCs, or do you “go at it alone”?
We pulled in a number of investors for a pre-seed deal and created the coalition, but generally we have invested alongside others as at this point, we’re not putting enough capital in to make it worthwhile to go it alone.
7. How long do you foresee investing in a company for? 2 years? 5 years? What?
We expect that it will take 5-10 years to get to liquidity on the successful ones J. Often with a deal that goes well, you don’t want to get out soon as you want your returns to continue to compound tax free. When there’s a liquidity event, you get hit with the cap gains tax. You get rich by that compounding!
8. How has the current financial crisis affected your investment outlook? What’s your “runway” these days? (Runway is the length of time before the cash runs out before revenue kicks in to a startup).
It means that more entrepreneurs have realistic valuation expectations. Luckily, our group didn’t have much market exposure so our net worth has remained intact and thus we haven’t scaled back our angel investing. Generally, you want a company to have 12 months of runway post financing to hit key milestones. Also, in this environment – businesses that have a clear path to revenue and profitability without having to build huge scale first, have an advantage. If they spit of cash (even a little bit in the beginning, they can use that to grow while potential competitors can’t get funded)
9. What level of involvement are you most comfortable being solicited for?
Not sure I understand the question…monetarily, we look at $25k-$150 and like to either be the first money in, or invest alongside a series A investor we like who wants us in to add our network / knowledge. We will take a board seat if desired by the entrepreneur / other investors and can pick the best person from our group to play that role.
10. What’s the “The Perfect Pitch” for you?
Google? Just kidding. We like businesses being built by smart, passionate, and emotionally intelligent teams that are going after a unique niche that will produce high margins in a recurring way. Ideally, the founders have already built an alpha version of the product or have initial customers lined up (letter of intent – or better yet – a contract).
11. What proportion of funds will be invested in new business versus follow-on monies (ie new investments or protect old investments)?
We focus on new business. We will follow on a pre-seed investment in a larger angel / seed round and sometimes invest in the series A, but earlier is better for us. We like business plan risk as long as the valuation is priced accordingly.