In Chapter 11 of 17 in his 2011 Capture Your Flag interview, Internet entrepreneur and SimpleGeo CTO Joe Stump shares his approach to evaluating both Seed and Series A investors. In the early days, Stump looked for investors who had names and who understood the value proposition. He compares this to dating. Now, after two years, Stump looks for ex-entrepreneurs who invest their own money. He sets an investor cap at roughly $250,000, which at $50,000 per investor means about five angels. Stump is the co-founder and CTO at SimpleGeo (www.simplegeo.com), a San Francisco-based mobile location infrastructure services company. Previously Stump was Lead Architect at Digg. He programs in PHP, Python, Django and enjoys scaling websites. He earned a BBA in Computer Information Systems from Eastern Michigan University.
Erik Michielsen: What criteria did you use to evaluate potential investors?
Joe Stump: That’s a great question and I think it’s something that I’ve been doing a lot of thinking about recently. In the beginning, to be totally frank, in the beginning of the seed round I was totally new to the game. I didn’t know any of the terminology. I didn’t know how any of this shit worked, and I literally said, “If you have money and I don’t totally hate you, let’s get this on!” It’s kind of like when you’re a fifteen/sixteen year old guy and you’re getting ready to finally enter man hood, you’re like, “Anything will work at this point!” And as you get older you’re like, “Well, I have very specific needs and very specific things that I look for.” And I think that my attitude has changed a lot recently.
So, in the early days I looked for obviously people that were top tier investors that had wins that I could point to and say, “Clearly these guys have helped entrepreneurs win in the game.” That was probably the first thing that I looked for. And I also looked for people that I could get along with. There are investors that you’ll sit down with and it’s clear, just like when you go out with dinner with a girl for the first time. Within ten minutes you know whether or not you’re going out on a second date, right? It’s the exact same thing with investors, you walk in and you’re like, “Here’s my idea.” And they’re like, ”Eh.” And you’re like, “Well, no second date!”
So, I think really finding – those are the two things that I looked for. I looked for investors that got the idea, got the value of the proposition, were passionate about it and I looked for people that had funded companies that won and funded really good companies that I respected. That’s changed totally since – now, uh, I don’t like the whole super angel, seed kind of thing. I think what I look for in investors now are people that use to be entrepreneurs, and invest with their own money and normally don’t invest more than 200K. And that’s the first round – after that – Because I really think you can build almost any product on the face of the planet for 250K or less, and I think 250K is at the very high end these days.
So, in that reality, at most you need is five angels, right? So I think the big thing that has changed for me is in my future companies I don’t think I would pitch a seed round, I would pitch a couple of investors that were investing their own money. I think there’s a very big difference in the dynamics between people that invest their own money and people who don’t invest their own money. And I think there is a very big difference in the insight and advice that you’re going to get in somebody who has worked in startups verses people who have started startups.
Erik Michielsen: And how has that – what you’ve learned from looking at investors at in the early stages applied to how you’re making decisions reflecting on your Series A and looking forward to your Series B?
Joe Stump: Well, it’s really different, right? Because each stage of the company and each stage of funding requires a different set of skills. So, now that we’re a twenty-something person company and we’re turning around revenue and we’re starting to negotiating big deals with big clients, we fundamentally need different insight and different money.
I don’t need that at this stage in SimpleGeo, I don’t need the guy that was the first angel investor in Instagram or the guy that founded something like that. I need the guy that was a late stage investor in TeleAtlas. That knows how to grow a big business and turn it into a billion dollar company. So, I think as you progress through those stages of funding you need different investors with much different experience funding much different companies.
Erik Michielsen: So, you’re dating different types of chicks?
Joe Stump: Indeed.