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Interview with Matt Dunbar of the Upstate Carolina Angel Network

August 4, 2008

Last week, I had the opportunity to talk with Matt Dunbar, the Managing Director of the Upstate Carolina Angel Network.  Matt is a graduate of Clemson University, and he recently returned to the upstate after earning his MBA from Stanford and spending several years with Boston Consulting Group in Atlanta.  Matt discusses his transition from consultant to managing director, entrepreneurship in the state, and the present and future of UCAN.

SCStartups: So Matt, you graduated from Clemson. Can you walk us through your career to now?

Matt Dunbar:  I graduated from Clemson in ‘99 with a Bachelor’s degree in Chemical Engineering and took a job with a company I co-oped with when I was in school, Eastman Chemical Company.  I worked for Eastman for about four years as a manufacturing engineer in one of their specialty plastics plants and in an applications development role working with our scientists and our customers to improve our product offerings to the marketplace.  Along the way I decided to shift my focus from engineering to business, and I was fortunate to have an opportunity to study at Stanford’s Graduate School of Business, so I ventured out west.  I earned an M.B.A as well as a Masters in Education while I was at Stanford from 2003-2005.

What led you to choose Stanford instead of an east coast school?

Quite frankly it was a combination of the strong academics at Stanford and a real sense of adventure and a kind of romantic concept of “go west young man.”  I love the landscape in California, and I took advantage of the weather to spend a lot of time outdoors hiking and fishing. Of course the classroom experience was phenomenal as well - with incredible exposure to some of the pioneers of Silicon Valley, as well as extraordinarily talented students and professors.  I had a great experience.

So what did you do after you graduated from Stanford?

I really enjoyed my time in California but long term I wanted to be back in the Southeast, so I set my sights on making a move back in that direction.  Also, I was pretty impressed with my classmates who had come out of the management consulting world, and I thought that their skill set was really compelling - strong analytics coupled with a unique ability to communicate clearly.  So given those drivers, I focused on seeking opportunities with the top management consulting firms that had offices in Southeast.  In the end I joined the Boston Consulting Group in Atlanta, so it accomplished both my goals of extending my business education  and getting back to the Southeast.  I came on with BCG in September of 2005 and was there for about two and a half years.

Of course one of the things I really enjoyed about Stanford was the tremendous exposure to entrepreneurship, and it planted the seeds for me to want to make a shift from the large corporate world to more entrepreneurial endeavors - so when the opportunity with UCAN came along it seemed like a great way to participate in the entrepreneurial space. It also allowed me to get back to South Carolina which is where I ultimately wanted to be.
What exactly is the Upstate Carolina Angel Network?

UCAN is a network of individual investors who seek to infuse equity capital into fast-growth, high-potential startup companies in the region.  These kinds of investors are known as “angels,” because they provide a source of capital between friends and family and institutional investors.  There has been a trend over the last decade or so for individual angel investors to form groups to improve their ability to screen, evaluate and negotiate investments, and there are about 300 angels groups around the country today.  Our group is a network in which each member makes his or her own investment decisions - in other words, we are not a committed fund.

UCAN was formed over the course of the last year or so by several folks around Greenville who had been involved in angel investing on an individual basis and in groups in other cities, such as Charleston.  They began exploring the interest in forming an angel group in the Upstate and had a strong response, so they put together a core team who hammered out the details and launched UCAN in April of this year.

How did you get involved with UCAN?

I attended a Clemson Renaissance Center event in January, and it just so happened that I stood in the buffet line next to JB Holeman (one of the founders of UCAN along with Tim Reed).  I mentioned my interest in returning to the Upstate, and he mentioned that UCAN was seeking a Managing Director.  Over the course the next couple of months or so, we stayed in touch, and I was invited to come up for an interview in April, and I came on board full time in May.

How do you fit into the day to day operations?

My job as Managing Director is to coordinate the overall investment process for our group - which entails everything from general administrative tasks to generating and screening deal flow to working with entrepreneurs on their presentations to working with our investors on due diligence and deal negotiations.   Fortunately, we have a strong Board and several committees who help carry the load.

What’s the current investment model?  Will you co-invest with other groups or VCs?

Our model is much like other investment groups - we are seeking preferred equity investments in early stage companies, primarily as a first tranche of capital beyond friends and family.  We are very much interested in syndicating with other angel groups, and have established relationships with a number of them in our region - we expect to share deals on a regular basis and are currently working on a joint due diligence effort with the Charleston Angel Partners.   We will also look to build strong relationships with VC firms to help develop a pipeline for our portfolio companies to seek additional capital as they grow.

Lets say I am an entrepreneur with a great idea and a solid team.  I’m interested in having UCAN fund my company.  What do you look for if you were to invest in our company?

After benchmarking with a number of other angel groups, our Board has recently set down some deal screening criteria that define what we’re seeking.  Primarily we are looking for companies that can achieve very rapid growth and have the potential to return ten times the investors’ money within 3-5 years - so in otherwords, these are not “lifestyle” type businesses.

Other screens we apply are geography (within about 4 hours drive-time of Greenville), valuation (generally less that $5 million pre-money), amount of capital sought (usually up to $1.5 million, although may be higher for syndicated deals).

From a business perspective, we are looking for a strong management team that’s trustworthy, passionate and articulate - and preferably with deep startup and industry experience.  If the management team doesn’t have that experience we at least need to see a Board or key advisors who can bring those critical skills to the table.  Of course we also need to see a compelling market need, a viable solution and a defensible competitive advantage for the company’s product.  Finally - there must be a viable, well-constructed, believable plan to execute against the opportunity - there are tons of great ideas out there, but we need to see a clear-cut path - from a sales and marketing standpoint - to “cross the chasm” from idea to viable fast-growth business.

That raises an interesting question (defensible position) about patents.  Some people say that patents are not necessary because if you are startup and you get sued by IBM, you won’t win anyways. What’s your view on that?

We like to see a defensible position. That doesn’t necessarily have to be a patent - especially in areas such as software, where there are so many ways to get around a patent anyway.  It’s quite possible that a strong patent position is an important part of building the company’s defensible position, particularly in industries such as materials and devices, in which case we put more emphasis on it, but overall we’re really looking at the company’s competitive advantage - which can come through many avenues, including patents, unique cost-structure, first-to-market timing, novel processes, etc.

Are you accepting executive summaries or business plans?

Yes.  We are taking business plans through out web site.  (www.upstateangels.org)  Click on the Entrepreneur’s page and follow the link to submit plans through AngelSoft.

How has the transition been from consulting world to the investing world in dealing with startups?

The nature of a large company is vastly different from startups, and there’s quite a bit of difference in thinking about what is critical for success given the stage of development.  However, there are many things that the consulting teaches you - especially how to analyze, prioritize and communicate - that are also critical skills for a role like this one.  It’s very challenging, but also great fun, and I’m learning a lot.  I really enjoy learning from our investors and from entrepreneurs, and I love being a part of the real engine of our  capitalist system - the risk-taking and hard work that drives the economy.

Have you noticed any trends in the ways large Fortune-500 companies do business that could help startups be successful at an early stage?

There are certainly lessons to be learned.  A strong management team is key in both - their ability to execute, prioritize and adjust to changing conditions is essential.  There are also great lessons to be learned about developing and implementing strategies that allocate precious, limited resources to the most-important, highest return uses.  Of course, the challenge that is unique to entrepreneurs is that they generally have to be more focused on short term cash flow - otherwise a great growth strategy can run you right out of business if you can’t generate the immediate cash needs to stay afloat until you reach critical mass.

As a native of Upstate South Carolina, what can the state and universities do to foster more innovation and help people start companies?

I think a lot of activity we are seeing now is absolutely along the right path to building out our entrepreneurial infrastructure.  We need to continue growing support for the whole spectrum of entrepreneurial activity - from invention to management training to entrepreneurial finance.
The research centers and tech transfer efforts at all three of our research universities are critical, as are efforts like the Clemson Renaissance Center and the state sponsored FastTrac program to expose entrepreneurs to the unique challenges of managing fast growing enterprises.   Seed and early stage funding through programs like SC Launch! is vital - and the state can do more to provide incentives and tax credits for those who choose to put risk capital to work in startup companies. Local economic development programs are also important, as are networking and professional programs such as the Greenville Chamber’s NEXT group.
All these efforts are important components of the big picture - and just like innovation in the most well respected companies - we need to continue refining our approaches, failing fast, and focusing resources on the programs that create the most impact.
Is there anything else you would like to add?
We just want to let people know that we are open for business and looking for good deals.  We also want them to know we intend to provide value-added capital - in other words, not just cash but also seasoned advice and experience from our members.

So does that mean you look to take board seats or advisory roles?

In most cases we would expect to have a Board seat in our portfolio companies, although in some cases we would take on observer status - especially if we invest in syndicate and  another group is represented on the Board.  Either way, we intend to be a resource so that a portfolio company CEO can call us up to help them navigate through their challenges.

Written by Adam Steinberg · Filed Under Blog, Venture Capital 

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