(This is a transcript of Rob Hassett’s interview of Knox Massey who is a member and managing director of the Atlanta Technology Angels for B to B Magazine)
ROB: This is Rob Hassett with btobmagazine.com. Today, I’m going to be interviewing Knox Massey who is a member and managing director of the Atlanta Technology Angels. Knox, good morning. It’s good to have you on.
KNOX: Thank you. It’s great to be here.
ROB: Knox, before you came back to Atlanta, I know you grew up here, you were working for AOL, is that right?
KNOX: That’s correct. I worked for America Online in the late ‘90s.
ROB: In what capacity?
KNOX: I was the sales manager of an office here in Atlanta, and I covered the territory in the southeast. Most of my business was done in Georgia and Florida, with a little bit of business in Alabama and South and North Carolina.
ROB: And then you went to get an MBA at Georgia State?
KNOX: Yeah, I entered the program in 2001 and finished up in 2002 over at Georgia State. It’s a great program. It’s called the Global E-Management Program, which I don’t think actually exists any longer, but it was geared towards sort of an MBA program and it focused on technology, which is what I was focusing on at the time, and of course still do with the Atlanta Technology Angels.
ROB: Knox, when did you first become a member of the Atlanta Technology Angels?
KNOX: I joined ATA, we call the Atlanta Technology Angels “ATA” for short, in 2001. I met a person by the name of Mike Dickerson who I had met over at E-Hatchery, if anybody remembers that. And he introduced me to the folks at ATA and I joined in the middle of 2001. Then I became the managing director I believe, it was in late June of 2002.
ROB: When were the Atlanta Technology Angels first formed?
KNOX: The group itself was formed in late 1998. They did a little bit of leg work and visited some Angel groups up in North Carolina, which had some early Angel groups back in the early to mid ‘90s. The group actually started meeting in ’99 after they sort of formed the group, which is actually a C-Corp, a non-profit C-corp. So the group started meeting in ’99 and started investing in, I believe the first investment was in October, 1999, in a company which is now called Connecture and is still an ongoing concern.
ROB: What is the mission of the Atlanta Technology Angels?
KNOX: The mission of ATA is to fund young Georgia-based technology companies, and young sort of means early stage formations of a company, and also to help the entrepreneurs. So, it’s sort of a double mission. We put capital in to the young companies to get them up and running, but we also will pick one or two or three individuals that may invest in that company, and have them work with the management team over time.
ROB: What are the requirements for being a member of ATA?
KNOX: Well, generally, you have to be an accredited investor to invest in a lot of these young companies. So as an accredited investor, you have to have an affinity for technology, be it you started or worked in a technology company. Of course, you have a commitment to Atlanta and more broadly the state of Georgia. So it’s a fairly simple requirement — if you’re willing to take a little bit of time and effort and capital and work with young companies to get them up and running and started in the state of Georgia.
ROB: How many members do you have?
KNOX: We’ve had as many as 75 members and as few as about 25 members. We tend to stabilize right around 50-55 on an annual basis.
ROB: What is the process, Knox, for an entrepreneur that’s interested in trying to obtain an investment from the Angel investors, from your group?
KNOX: The best way is, if you’re a young entrepreneur and you’re looking to raise capital in Atlanta, that you do a little bit of leg work and pound the pavement and find the people that are in the area of capital raising, and you usually can find them fairly simply in Atlanta. All the way from Nora Moseley or HIG down to ATA, which is sort of a private group, as well as maybe the ATDC Seed Fund or some other private investment groups around town. So really you have to do a little bit of leg work or due diligence, and find the people in the community. If you can find someone that knows me, that’s an obvious and they can do a quick introduction. We have some very public investment criteria on the web. We’ve got a web site and I’ve got a blog, so there are numerous ways you can find us.
ROB: What is the web site?
KNOX: It is http://www.angelatlanta.com.
ROB: And what is the process once they contact you? Should they send you an e-mail with a business plan or what?
KNOX: Typically, we’ll ask for a short executive summary or a short business plan. So a short executive summary of one or two pages describing the business, the product, or the service, and the management, or a short business plan, maybe a little bit more detailed maybe four to five pages. That gives us an idea of the company itself, the product and the company and the management. We quickly take a look and see if it meets the investment criteria. And if it does, which can be very broad-based in terms of what technology we look at, then we’ll move it in to a screening process that we have. It meets twice a month. Usually anywhere from three to eight members of the group will sit down for three to four hours, twice a month, and review the companies. We actually bring the companies in to do a short presentation. And then at the end of every month, we have a formal meeting where we invite all the investors of the group to come listen to at least two companies. And generally, we’ll also have a speaker. At that time, after the companies have presented, we can determine if there’s a high enough interest that would make an investment viable for that company as well as the group itself.
ROB: And does the group ever invest or just the individuals that decide themselves whether they want to in vest?
KNOX: Well the Atlanta Technology Angels is not a fund. Members of ATA have invested in over 40 companies through ATA, so hopefully we’ve learned something. But typically each individual will make an individual investment. But we’ll take those investments and aggregate them into one investment, and we will form an entity, generally an LLC or partnership, and that partnership or that entity will invest in the company itself. We do that for many reasons. It’s easier for the company to sort of handle those multiple investments. It’s actually easier for the Angel group because what we do is take one person and we make them the general manager of that entity, and that person is responsible for interacting with the company as well as the other investors. And last, most of our companies, about 80-85%, go on to get venture capital, and the institutional capital likes to see a very clean cap sheet or structure. And what we want to show to them that it’s not nineteen different investors they have to deal with; it’s one entity as well as maybe the founders and maybe some early friends and family money. So it’s easy for the institutional investor to understand and work with as they go forward.
ROB: So after a presentation is made to the formal group, anybody that’s interested would tell you if they’re interested, and then if there’s enough interest. So if four members are willing to put up enough money for it to work, then you say okay, you guys, go ahead and do it.
KNOX: Well what happens is a group will really form from within the Atlanta Technology Angels. Let’s say, for example, we’ll have a meeting at the end of the month and eight people have a high level of interest. What we’ll probably do, and we all pretty much know each other in the group, and we all will show the interest, we’ll find out who’s interested and we’ll put together most likely either one or two, depending on what we need to understand, due diligence sessions after that formal meeting where the company presents to the Atlanta Technology Angels. And that’s a chance for the investors to come in and spend more time on maybe the product or maybe the financials, maybe a little bit more about the background of the management, it just depends. Every investment is a little bit different in terms of what we concentrate on. So that group will concentrate doing their due diligence and once they’re satisfied then they’ll put the investment together like I mentioned a little bit ago. They’ll create an entity they’ll invest in to the company themselves. And that’s also a process as well. I’m not sure we want to go in to it right now though.
ROB: What’s a typical investment that the ATA group members would invest in? I mean what’s a typical amount?
KNOX: Well, there’s no typical investment. Generally, the investments range from about maybe $250,000 up to a million. It just depends on the situation; it depends on what the company’s trying to raise. If a company is raising as much as a million, generally you’re probably … well, a group like us, is probably going to have to co-invest with another group, for example, Imlay Investments or another Angel group. So you have a small syndicate that would invest for those larger amounts. ATA has done multiple investments in the range of 200, 250, to up to $500,000 individually. Not individual persons but a loan as a group. So it just depends.
ROB: What’s the typical form of the investments that the members make?
KNOX: Most of the investments are in preferred shares and/or convertible notes. The convertible note being a debt instrument that will convert to a preferred share at a later point. We rarely, rarely due common stock. In fact, I think the last common stock investment we made was maybe in the year 2000.
ROB: Do the ATA members offer anything other than money?
KNOX: Well, I mentioned earlier that often we’ll pick one or two or maybe as many as three members from that investment group that will work with the management team and mentor them over time. Again, that depends if we can find someone within the group that has the capability and expertise that can help that management. If so, then they’re an obvious choice and they can go on and serve as a mentor. So yes, we don’t advertise that we have some sort of wonderful added value beyond the money because we want to make sure that our members helping makes sense before we have that person help the company.
ROB: What type of business plan are you looking for?
KNOX: Well, you know, the Atlanta Technology Angels are technology oriented. Georgia based, and very broad. And we do that on purpose. A lot of our members have varied backgrounds. They could be semiconductors or internet security, or telecomm, or sensor related and so on. So we try to keep it very broad because the membership has a broad interest base. We don’t want to narrow that so that we only see software and we can only see semiconductors.
ROB: Knox, what do you want to see in a business plan in the sense of how many pages are you looking for in general? Are you looking for something long and deep, or short and sweet?
KNOX: The shorter the better. Generally, I mentioned earlier, an executive summary of one to two pages, or a short business plan. Maybe the most is four to five pages. Most of the information that we need to see can be put into four to five pages. We don’t need a fifteen page or twenty page business plan just to show that you can create one. We’d rather have shorter so that we can quickly review the company, the product, the service, the management, the financials if they’re there. So we can determine if it’s a good opportunity that we’d want to review. I mean over the years we’ve looked at thousands of business plans. We generally know what we’re looking for pretty far up front.
ROB: Are you more interested in them going directly to you or do you appreciate it when they have a go-between?
KNOX: You mean a broker?
ROB: A broker, right.
KNOX: Generally, we don’t work with companies that have brokers. And one big reason is that all the money that we invest we want to go to the company. For example, if the company raises $750,000 and a broker takes $75,000, that’s $75,000 which, in our world is a lot of money, that can help that company. We prefer that the company not use a broker, and that’s one reason. Another reason is we want to hear from the company and the management. We don’t want to hear from a broker. We want to understand the management, know their backgrounds, see how they work in front of a group, can they tell the story. If a broker’s doing that, you don’t get the full impact of how the management team is going to work going forward. Those are the two main reasons.
ROB: Knox, you had mentioned to me that there was a particular reason that North Carolina did so well early on in the high tech area.
KNOX: Well, from what I could determine, they passed a tax credit, I believe it was in 1996. I’d have to go back and look at my notes. But the tax credit gave a specific tax credit to investors in early stage technology companies. There were some provisions in that tax credit bill which stipulated that the Angel groups or early stage investments groups had to form a fund. Actually, I believe the fund may have gotten the tax credit which flowed down to the individual investors. So you saw really an explosion of Angel groups happen in North Carolina based on that tax credit. And since that time, I believe there’s over twenty states that have implemented tax credits; Hawaii, Wisconsin are two of the ones that are very, very successful. I believe North Carolina still has the tax credit, and there’s numerous others. In 2007, me and one other ATA member, Dan Pompilio, put forth a bill in the legislature and it was called House Bill 435 which was a tax credit bill for early stage investors in technology companies. Unfortunately, it did not succeed and we tried again last year. That did not succeed based on some other bills that had higher priorities. We’ll probably continue to try that, but I think it is absolutely needed in the state of Georgia … that the state encourage private investment in young companies. The tax credits for early stage individual investors, in my opinion, is needed and is very, very essential especially in these tough economic times.
ROB: So twenty or more states have the credit right now, and Georgia has none.
KNOX: That’s correct.
ROB: Now what is the Angel Capital Association you had mentioned to me?
KNOX: The Angel Capital Association is a trade organization that was formed in 2003, and it is comprised of over 150 Angel groups throughout the nation. All the way from Florida up to Maine, over to California, Texas, etc. I believe that there’s quite a number of international Angel groups as well in the group.
ROB: And you are an executive of that organization?
KNOX: I’m on the Board, that’s correct. I joined the Board in 2007, so I’ve got a three year stint, so through 2010.
ROB: And there’s a major meeting planned in Atlanta shortly right?
KNOX: That’s correct. We have an annual summit. Last year it was in San Diego in May. This year, I convinced the Board to bring it to Atlanta. So the Angel Capital Association Annual Summit will be in Atlanta this year April 15-17 at the Intercontinental Hotel in Buckhead. We are just now distributing the agenda. If you go the Angel Capital Association web site, you can find the agenda and more information on the summit. Last year in San Diego, we had 300 Angels there, which represented about a hundred Angel groups. So I imagine we’ll have just as many this year here in Atlanta, even with the tough economic times. I would encourage all individual investors who are interested in this field to attend. We’re inviting entrepreneurs to attend the Thursday night cocktail reception where we give a specific reward to an Angel who’s done a lot in the field. It’s a great way to meet Angel groups and Angel investors.
ROB: And any one that’s interested in attending that event, any entrepreneurs that want to attend that event or Angels that want to attend the summit, should go to the Angel Capital Association web site?
KNOX: Yes. Well, the actual summit is for Angels only, so investors only. And it’s a crowd of Angel investors and Angel groups, and we talk about specific content about this type of investing. We always invite local entrepreneurs to the event on Thursday night which is about a three hour cocktail reception that we have for the attendees as well as local entrepreneurs and local businessmen.
ROB: And Knox, there was a web site you mentioned that entrepreneurs could use to find out who the Angel investment groups were.
KNOX: There is on the Angel Capital Association web site, there is an area … I’d have to take a look, but there is a listing of all the Angel groups that are members of the Angel Capital Association by geography. So literally southeast, northeast, midwest, west. I believe I looked at it last week, it’s listed by state. So it’s a very, very easy way to find out what Angel groups are in what states and in what geography. So it’s easy to find out who runs the Angel groups, what they do, etc. Most Angel groups have web sites, or there is the ability to find them fairly easily. And there’s no charge at all to access these Angels. In fact, the Angels and major Angel groups want to hear from the entrepreneurs.
ROB: And is there a particular stage in a company’s business life that you are looking for? Do you guys, in other words, fund start ups generally or fund companies that have already gone through initial seed capital and they’re looking for the next round?
KNOX: Well, people can have different definitions for seed capital, or start up capital, or early stage capital. A lot of times, those terms get intertwined. Typically, and every Angel group is a little bit different. So it’s very important for a company or an entrepreneur looking to raise capital to understand what metrics that Angel group or Angel is interested in investing in. So our group will do early stage. What does that mean? It probably means that you have a small team; you have identified or have management on board, meaning a CEO. You have a product that is maybe finished, maybe in beta. We have funded start ups, literally stuff written on napkins. That was very common in ’99 through 2001. That doesn’t happen that much. Some Angel groups may do that. We typically don’t anymore. Typically, we’ll come in after their friends and family monies. So the company’s up and running; it’s been established; it’s raised a little bit of capital maybe from the founders, maybe from friends and family. They have a good idea of the product or service. They’ve identified the management, or they have the management on team, and then it’s very obvious. Hey look guys, and then we’ll dive right in.
ROB: Knox, thanks a lot for being available today. You’ve really been a big help, I believe, to a lot of entrepreneurs that will listen to this.
KNOX: Sure. Glad to do it.
KNOX: Okay. Talk to you soon.