Ed Harrell: Why Ask Why? When Investing, That’s the Most Important Question
When it comes to evaluating startup companies, angel investor Edgar Harrell believes that “why?” is a much more important question to ask than “what?” or “how?”
“I ask ‘why?’ a lot because I want to get some idea of how entrepreneurs think through their strategy,” he says. “I can see what people are doing and how they are doing it–but if I can find out why, I can network them with the people who have experience in the same kinds of issues they’re struggling with.”
Harrell is an economist with extensive experience in early-stage financing of technology companies, managing private and public programs in the areas of privatization, technology commercialization, entrepreneurial training, capital market development and private investment in Asia, Latin America, Africa and the Middle East. With more than 30 years of experience as an angel investor, Harrell has a broad perspective on the angel investment community. He is currently invested in 12 companies, five of which are portfolio companies with the Ben Franklin Technology Partners (BFTP).
“The number of individuals who are willing to invest in companies using early-stage seed money has gone up tremendously since I started,” he says. “Today, the money in the angel investment community might even exceed that of venture capitalists, partly because investors have discretionary money they didn’t have before, partly because more people have been successful in business and partly because a lot of people are retiring early and want to give back.”
A Thriving Investment Career Born over a Beer
Harrell got his first experience as an angel investor over a conversation at the Taj Mahal bar in India. “I met this guy from the University of Nebraska who was developing a new way of priming seeds,” he says. “Frankly, I didn’t know what he was talking about. But I liked him. When he asked me to invest in his company, I gave him some money. Ten years later, I got a nice check in the mail and thought, ‘Hey, this is pretty easy.’ ”
One BFTP portfolio company in which Harrell invested in the early stages is Pest Patrol, developers of a revolutionary anti-spyware program. “Pest Patrol turned out to be a very successful company, both for me and Bob Bales, the entrepreneur who started it. Bob has since started two new companies, and I have invested in them both,” Harrell says.
Another one of Harrell’s co-investments with Ben Franklin is Salvage Direct, a company that auctions cars being sold by insurance companies online. “Salvage Direct is a successful pioneer in the online auctioning of wrecked cars and boats, which were typically sold in a physical auction,” Harrell says.
A third BFTP portfolio company that Harrell is very passionate about is Hanson Technologies, developers of a unique system that can detect with nearly 100 percent accuracy whether vegetables contain e coli. “This technology means the end of produce recalls, because you can determine whether it is infected before it is even shipped,” Harrell says. “Although I haven’t invested in the company yet, I plan to, and I introduced the entrepreneur to people who have invested.”
In addition, Harrell and his three sons, each of whom are highly placed in large software companies, started their own fund that invests in early-stage software companies. “We each put in 25 percent,” he says.
Sizing Up Potential Investments
When Harrell examines companies for potential investments, he asks himself three key questions.
1. Does he like the people?
“For me, the most important thing is that I like the people. If you invest in a company that’s just starting up, you’re going to spend a lot of time there, and you’d better like the people. And they’d better like you too.”
2. Can he add value?
“If people are just looking for money, and I can’t help them beyond the financials, there’s no reason for me to invest. If I were just looking to make a lot of money, I wouldn’t be in early-stage financing–I’d be in something with a higher return and a lower risk.”
3. Can the leadership team do it?
“Starting a company is a 24-hour, seven-day-a-week job, and it can be really frustrating and taxing on personal relationships. I want to make sure the entrepreneurs have the fire in the belly it takes.”