Insights into Angel Investing from CTAN’s Gary Forni

By SUSAN LAHEY
Reporter with Silicon Hills News
As an angel investor, CTAN’s Gary Forni has formed a clear list of what he looks for before he puts skin in the game with a startup.

1. It has to be disruptive. Whatever the product or service is, it has to be compelling enough to change the way people function. He listens for the words 10X. “If you tell me it’s 10x better, faster, cheaper, smaller, that it’s going to change how industry works…I listen for that. Every entrepreneur is wrong about how much money it’s going to take. But if you think it’s 10X you can be wrong and still be okay.”

2. It has to have the right kind of team. That means they not only have the technical knowhow, they have to have the sales ability. Plus, they have to be willing to listen and take advice.

3. They have to be in a market that has the potential to be $1 billion or greater.

4. They have to be looking at a return of at least 15X. “If I put in $100,000 I want to get $1.5 million out. I might put in the seed money and my investment is going to be diluted as we go along on this path. There needs to be a very high ROI.”

5. The competition needs to be fragmented. “If they say ‘We don’t have any competition,’ then we don’t need to talk anymore,” Forni explained. “If they say ‘We’re competing head-to-head with Microsoft, Intel, Apple….’ my response is… you want to be competing with somebody who has 80 percent of the market space? Really? Those are the guys who, when you get on their radar screen, will squish you. It’s best if the competition is fragmented without anyone having a dominant position in the market.”

6. They have to have credibility. Customers are credibility. Even if they’re just a few validation customers. Other credibility points including winning business pitch awards and partnership agreements with other companies that do have credibility.

7. Making Progress on their plan: “They have to be able to articulate a set of milestones in terms of running the company and show they’re moving down that path: In six months we will be here and in a year, here. Are they on the path to making those come true or are they flying by the seat of their pants?”

8. A believable marketing strategy: How do they plan to engage customers in a way that meets the customer’s needs. What is the customer problem being solved by this product? Are you satisfying an unmet need better than the existing entrenched players?

As he writes these criteria on a whiteboard in a Spartan office at Austin Technology Incubator, it’s clear that Forni is still excited about a good idea, though he sees hundreds of deals every year. Forni, who moved to here in 2006, spent 22 years at Intel, came to Austin to work at Marvell, and has devoted most of the last two years to mentoring and funding startups at ATI as well as Incubation Station which incubates consumer packaged goods companies. He spends a lot of time helping young companies understand how to navigate the hurdles ahead of them.
One deal, for example, was a good idea, a disruptive idea in a large market. But it would require building a whole ecosystem around it to make it work, what the investment world calls a greenfield.
“These were three juniors in college. They weren’t going to make that happen. But it was a really good idea. The market exists…the idea exists…maybe in a different industry…. Then they had this ‘Aha!’ moment. Take that idea and apply it to this market and it would completely change how the market operates. It was huge….” while he explains, Forni’s hands move the invisible idea through the air.
Ultimately, however, there were still snags. “This was three engineers looking at starting a business as three engineers. They had a great technical skill set but they didn’t bring the business skill set. That’s a huge hole.”
They didn’t know how to do business development, put together contracts, vet the product with alpha customers. It’s a problem he sees a lot in the university system. Not only are the engineers short on business skills, they are sometimes so impressed with their own skills, they don’t respect those of a business person.
“The ones I shake my head at are the ones who say ‘This product is so good people will come to us to buy it’” he said. “Not in the real world. That doesn’t happen. If you divide the stress and risk of starting a company into halves, the business side is the harder half, because it deals with people. And people don’t follow the same rules as software or physics.”
Sometimes, when he feels the need to get his hands dirty, he accepts the role of CEO on startups that impress him and brings his business expertise. That’s what he did with Heat Genie, a local startup whose technology turns product packaging into a heat source for items like soup.
“He came on when we were at a really early stage,” said Brendan Coffey, founder. “This is the first company I have ever founded and he had a business background that was really helpful.” At the time Coffey said, he had a concept on paper but also had interested potential customers. Forni built relationships with customers as well as angel investors. “He was good guy to work with,” Coffey said. “Very ethical, very mature. We had some transition stuff to go through. I’m type A and he’s type B. But he was very stabilizing in terms of the environment.”
That relationship lasted from 2010 to 2011 and it introduced Forni to the Central Texas Angel Network. He’d already been an angel investor in California, but meeting CTAN was a revelation for him.
“Having been at Intel during the 80s and the 90s, I did well. Money wasn’t an issue. I had done angel investing in San Jose. I would see interesting companies and would invest. I was a classic new angel investor. I didn’t do proper due diligence. I invested too much money early on. I didn’t have a mentor. I wasn’t part of a community. In those days investing was easy. You could throw a dart and think you were awesome.”
“When I met the Central Texas Angel Network, I thought ‘I really like these guys. They’re really smart. Many of them had graduated from MIT or Harvard. I was so impressed with their skills and their willingness to share their time and knowledge. I thought ‘These people are doing good in this community. I want to do what they do.’”
At almost the same time, he also took on the role of CEO in local startup TuffWerx, a company that offers online sales of used heavy equipment such as bulldozers to both small and enterprise customers. TuffWerx founder Erik Dreyer needed a CEO who—unlike him– didn’t have a full time job and a young family.
TuffWerx, Forni said, had all the criteria. It had a disruptive idea. It had customers in a huge market. Among its competitors, no one had more than four percent of the market. And more than any other element, it had a team he believed in who listened.
“Erik is one of the main reasons I went for it,” Forni said. “He is a stunningly smart guy and an awesome CTO. Unlike some CTOs who are heads down technologists who don’t want to interact with people, he’s really good with people. He takes direction, but he’s willing to argue his points, argue for the validity of his ideas. When you find people like that, that’s also a good indicator for investors.”
“Bringing Gary on was a no brainer for me,” Dreyer said. Though he has been running TuffWerx since he launched it in 2007, he simply couldn’t handle the work of managing the company in the time he had available. Forni, he said, has been very good at gradually asserting his authority.
“This is something you don’t blindly hand over the keys to,” Dreyer said. “I trust him. We’ve built a personal relationship, not just a business relationship. He’s a tremendous listener….he’s very gracious. He’s got great people skills. A great business sense. Integrity. And he’s very humble, not self deprecating but he said to me ‘You can learn something from anybody’ and he lives that attitude.”
Forni grew up in the San Francisco Bay area before Silicon Valley was Silicon Valley. His world, he recalls was mostly vineyards and chicken farms, people who worked for the phone company or the police department. He went to school at the University of California in Santa Barbara and got a degree in electrical and computer engineering. He got a job as an engineer at Intel and later became software group manager and then Worldwide Director of Marketing for Intel’s Cellular Ecosystem. Intel made both Intel and ARM chips for the cellular industry and it was Forni’s department’s job to make sure they worked in other manufacturer’s devices. This is where he learned many early lessons in intrapreneurship.
Not all the group’s products worked. Some, as he recalled “went down in flames.” One product never sold a single device. It was a key prompt for computer security. Nobody understood the need for a thing like that. That kind of experience taught him to talk to 100 potential customers before launching into a product.
Intel sold the ARM division in 2006 to Marvell, which brought Forni to Austin. But when he moved from Marvell to Calxeda, a company with eight employees at the time, he really fell in love with entrepreneurship.
“I thought, ‘This is much more exciting in that the decisions you make have much larger ramifications. You’re completely committed to the success of this and directly tied to the success of all the individuals of the company.”
But he’s gotten enough startup miles behind him that his head can’t be turned by a cool idea any more. He’s all about due diligence and getting to the nitty gritty with companies he helps. Many companies, he said, try to talk to investors from a high-level perspective. “But investors,” he said “want to take it all apart, look at everything, open the kimono, get down to hair, gut and feathers. Every deal has warts,” Forni said. “If you know what they are ahead of time, you can put in an action plan to deal with that.”
And that’s part of the excitement of what he does: Makes decisions that move the company forward in a way that’s not possible in a large company.
“Startups move so much faster than a large company,” he said. “A large company can write programs over months and quarters. With startups it’s like: We’re going to be done tonight. We’re going to work on this until it’s done. Better order pizza….’”

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