Monday Q&A: Hop in the sidecar

Mike McGinley and his venture capital club, New Dominion Angels, usually look at the talent and business plans behind young startups when deciding where to invest. But a recent deal had the New Dominion Angels looking inward: They wanted to see how another venture capital club, Active Angel Investors of Northern Virginia, might fit into the fold.

McGinley, a co-manager of the New Dominion Angels, gave the merger the green light, and in October his group will have its first joint meeting with Active Angel Investors.

New Dominion Angels is also adding a “sidecar fund,” which will let investors pool their money and invest alongside New Dominion Angels’ 45 members.

Nine times a year, two startups per evening pitch their concepts to New Dominion Angels members. The club gives a yay or nay. If a startup gets the go-ahead, each club member decides individually whether to invest. The group, which was started in 2008, has invested in ten companies.

BizSense spoke with McGinley over the weekend. Below is an edited transcript.

Richmond BizSense: You sound excited to merge with Active Angel Investors in part because of the reputation of founder John May. Why is that?

Mike McGinley: He started a group in the late 1990s, and he’s had a ton of momentum doing this. Over the last few years, he’s starting doing more and more evangelizing [about entrepreneurship] overseas, and he was looking for a place for his group.

RBS: What’s the upside of the merger?

MM: For starters, we can scale the back office. We will take on a new senior associate who can do everything from screen [new companies] to [pitch] administrations. Active Angel Investors also does a screening day each month with five or six companies and whittles it down to two to pitch to members. We want to add that process. [New Dominion Angels picks two to present at a monthly dinner.]

Plus we get John’s name, which gets us into circles we haven’t been in till now. A lot of deals come to him before the companies make [their hunt for venture capital] public.

We are also establishing a sidecar fund. That’s going to be a passive fund for accredited investors from all over the country, for investors who cannot attend the meetings but can invest in the deals. For example, say we put in $300,000 into a deal. We can allow a percentage from the sidecar. All that’s to say we have more buying power. The sidecar fund makes us more interesting to promising companies, and we can write bigger checks now.

RBS: How much do you think you can raise for the sidecar fund?

MM: We are going to aim for no more than $5 million.

RBS: How many deals is your group invested in?

MM: We are currently in 10, and we’ve invested $3 million. We got our funds back with a return from two more. Two of the most recent are an accounting software firm and a company called TRX Systems, which is a GPS-like system for the interior of a building and is intended for first responders and the military.

RBS: Have you sold any companies yet?

MM: The two exits have been sooner than we expected and for smaller multiples than we expected. We were thinking we’d have a few homeruns where we multiplied our investment by 10 over five years. Instead, what it’s looking like is a few doubles off the wall. But nobody struck out yet. So what is going to happen is we’ll have positive yields on six, seven, or eight out of 10, but those yields are smaller.

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Ben Evans
Ben Evans
8 years ago

Alright I’ll admit it — I don’t get it. This doesn’t add up for me. Why meet 9 times a year and see 18 deals presented, only to invest in two of them? That seems more like a social club than an investment club. And what’s with the zero failures? Doesn’t sound like enough capital is being put at-risk. If you want to hit home runs, you have to swing the bat. There’s a reason Babe Ruth was a home run king. He took a LOT of swings – and missed most of them. As an entrepreneur trying to raise… Read more »