Jack Warnock has a message for Philadelphia’s business people: they should become angel investors.
Discussing Philadelphia’s future is good and all, but angel investing is something that can actually make a difference, said Warnock, vice president of angel group Keiretsu Forum Mid-Atlantic.
“We need more people to actively step up and put money to work,” he said. “Be more than just spokespeople.”
For Warnock, it’s not necessarily just about investing in local companies (Keiretsu Forum sees pitches from across the East Coast and beyond, though Warnock has invested locally), but about building up the angel investing community.
Warnock, 59, of Berwyn, grew up 40 miles south of New York City in Hazlet, N.J., but has been in the area since he came to Villanova in the 70s. (He’s a Phillies, Sixers and Eagles fan but said that his only NYC sports allegiance is the Yankees.)
We talked to Warnock on the phone about his recent investments, what brought him to angel investing and why his own startup struck out.
Give us a quick intro to your professional life. What attracted you to early-stage investing?
I started at [accounting firm] Arthur Anderson in the enterprises group in the late 70s, focused on emerging tech companies and family-owned businesses. Howard Ross [now partner at investment firm LLR Partners] used to lead that group.
A lot of tech companies were going through IPOs at the time, and I got interested and wanted to move to the deal side. So I later joined Bell Atlantic [now Verizon Wireless], which was no small emerging tech company then. During that period of time in the mid-90s, we were doing a lot of acquisitions in the wireless area, software area and information services area, both domestic and international acquisitions.
Then I had an itch to get involved with the companies where you could really move the needle, smaller companies that had the opportunity to grow. Since that time I’ve been CFO of a couple of software companies. I’ve had opportunities to grab a “Google moment,” if you will, and have learned that some things work out OK and some things don’t. Frankly, I am still pursuing my “Google moment.” My intervening successes have been minor financially yet major in deeper and invaluable relationships, experiences and expertise.
In the mid 2000s, I stepped out on my own consulting practice doing mergers and acquisitions and corporate finance consulting and coaching. I really started angel investing by bootstrapping my own consulting and coaching practice, JW Strategic Advisors. My decision to do so was motivated by my belief that entrepreneurs and their emerging technology companies needed more comprehensive and holistic expertise such as mine to better build their companies.
You cofounded a software startup called McIsaac Risk Solutions at the end of 2010. How’d that go?
It was a company around software that John McIsaac built, helping banks do operations and regulatory risk assessments. We were helping smaller banks but we could have helped bigger banks — but we were dedicated to the community bank world.
We tried to raise half a million dollars in 2011 with angel groups. We presented at the first or second Keiretsu Forum [in Philadelphia] in March 2011 (and that’s how I met Howard [Lubert]). People were still stung by the recession at that time. We wound up selling our little company. It wasn’t a “Google moment.”
What went wrong?
In 2011, people were still very, very cautious. They were nursing some of the wounds from the recession. We went to pretty much all of the angel groups in NJ, NJTC venture fair, we pitched to Robin Hood [Ventures], Delaware Crossing, as well as funds themselves. I just think it was a very difficult environment.
You have to prove that the market is really going to buy your software, that you can really scale. It’s really a show-me kind of a world. We weren’t able to show that.
One reason that bigger banks wouldn’t take us on was our size. It’s a risk for them to buy from a small, early-stage company.
One of the things you have to do is get yourself up dust off and go on to the next venture. For me, that was business consulting.
You’ve been here since the 70s, when you attended Villanova, except for that one time you left. Tell us about it.
My wife is from Broomall and she kept me here. But in the mid-90s, I moved my family up to Andover, Mass., for a few years to become the CFO of [publicly-held] FTP Software. Unfortunately, Microsoft started to embed our software (we’re talking shrink-wrapped software at this point) and offer it to their customers for free, and when you try to compete for free, you’re not going to compete for very long. That company no longer exists. That experience showed me that a company can go from a healthy business to almost nothing in short order.
The opportunity to take my CFO role with FTP was one of those dream job opportunities. The objective was to take a $135 million revenue company to a $400 million company in three to four years and how were you going to do that? Acquisitions.
But Philly has been home. I ain’t going anywhere but here.
One of the blessings that I’ve had from being in this area for so long is that the relationships I have go way, way back. The first time Howard Ross and I met [Morgan Lewis attorney] Steve Goodman, he was delivering a workshop with a firm called Goodman and Ewing. It’s about being involved with organizations like PACT and NJ Tech Council and getting involved in the Chamber of Commerce and being on the small business board.
How do you think Philly’s angel investment community can get stronger?
I think one of the challenges for business people is to be able to step up [and become investors]. There’s a lot of rhetoric around how to push the region forward, like the [recently-released] Roadmap for Growth, which is a great effort and I love the people who are involved and the energy, there’s a lot of good conversations, but we need more people to actively step up and put money to work and come to a Keiretsu meeting — be more than just spokespeople.
There are lots of people who are successful entrepreneurs and business people, and we need those people to become active angel investors because the best quality is someone who was an entrepreneur themselves. We need more traditional business leaders like the ones at the Chamber to really step into the angel investor role. Not just for Philadelphia companies, but just to be able to build this ecosystem. I think one thing holding them back is risk aversion.
Tell us about some of your investments.
Even though most of my background over my work years has been in the IT arena, communications tech and software and mobile, I’ve invested outside of those industries
One is a medical device company from the Pacific Northwest that uses ultrasound technology to inspect ears. One of the reasons I invested in it was not just the tech, but the people.
LED module manufacturer LUXTECH [which raised $1 million in a round led by Robin Hood Ventures and Investors Circle] — Howard [Lubert] had worked with founder Sean Darras and knew him from past experiences. That’s the kind of Philly deal you love being a part of because it’s a homegrown company with potential.
You were raising a fund — Bridge Tech Partners — with Safeguard Scientifics right around the dotcom crash. What was that like?
Because of the work I had done with technology and corporate finance, I got an opportunity to work with Safeguard. I focused on later stage investments in telecom and software arena and that led to a smaller effort with Bridge Tech Partners, backed by Safeguard. It was a brand-new fund focused on women and minority-run companies. There weren’t many funds around the country that were focused on those types of companies. We were trying to raise $150 million.
I really wanted to be a player in the capital world and this was before the dotcom crash and certainly there wasn’t any better place in the Philadelphia world than Safeguard. It was a great opportunity to build a fund from scratch.
We were out in the market pitching pension funds and other institutions to raise the capital. We actually had deals under letter of intent for a couple of companies we wanted to invest in, but as the tech stock market continued to crumble and Safeguard fell on difficulties, the effort had to be suspended.
It’s always hard to start a fund from scratch. Under the Safeguard banner, you have a better chance. But it just wasn’t practical to continue.