MANAGEMENT ASSISTANCE
We make a concerted effort to assist portfolio companies with strategic and policy decisions as well as providing them with perspective on the many external factors that influence the growth of a company. We intend to stay out of daily operating matters. Each of us draws on his own experiences and acquaintances to assist management in solving some of the many problems that face a small company. Whenever possible, we provide high level introductions for our portfolio companies to help them grow.
FINANCIAL ASSISTANCE
The Managing Partners can call on their many contacts in the financial community to provide advice and services. We have helped our portfolio companies establish banking relationship, make public offerings, etc.
We frequently invite other comporations and venture capital investors to join with us in an investment, and we welcome participation with any organization whose investment philosophies are compatible.
CRITERIA FOR INVESTMENT
As a general guideline, we are looking for quality companies which have the potential to achieve profitable sales of up to $50 million within 3 to 5 years. The model company would consist of a complete and experienced management team, a highly distinctive product line, a $100-$500 million growing market for these types of products, a driving need for the distinctive characteristics of the company's product, and a well defined channel for selling into the market.
These criteria are accorded differing weights from situation to situation, but the one we most consistently apply and give the heaviest weight to is the requirement for individuals with superior management and leadership skills.
It is unlikely that we will be investing in traditional cottage industries like restaurants and individual retail stores. Our areas for preference include most industries where there are economies of scale.
FORM OF INVESTMENT
We have no fixed requirements or formula governing the amount of ownership we receive for our capital. Each investment is different and must be tailored to meet the objectives of both the company and Polaris. Generally, because of the risky nature of venture capital investing, when a company succeeds, we are seeking a return on capital of ten times in five years: however this is a minimum objective, and our expectations are greater for the earlier, higher risk situations. We do not require a controlling interest or a seat on the board of directors as conditions for investment, although the managing directors are available for board membership when such involvement is appropriate.
It is always important that the management team have a significant portion of the ownership in order that its members can fully reap the benefits of their extraordinary efforts. We encourage the management group to invest their own capital in the company.
The investment vehicle can be equity, convertible debt, or debt with warrants, although we usually prefer convertible preferred stock. We also favor a simple investment arrangement that does not require the application of a formula to future criteria, since these often distort other aspects of the company's development. We favor investments that align Polaris as closely as possible with management. Polaris currently makes investments in the $100,000 to $500,000 range.
HOW WE EVALUATE OPPORTUNITIES
As a first cut, we make an analysis of the business plan. A business plan should contain the following information:
- Investment Request
- Description of the Product or Service
- Brief History of the Company
- Business and Marketing Strategy
- Analysis of the Market and the Competition
- Resumes of Key Management
- Current Financial Statements and Projections
This Document should be a working document for the company, and not simply a sales tool for fund raising.
If Polaris then demonstrates an interest, we will conduct a telephone interview with the CEO of the company, obtaining additional information on the company's plans.
Third, Polaris will plan a visit to the company to meet the management, and discuss face to face the strategy of the company. Most vital is the caliber of the management.
Finally, with assistance from the management team, Polaris will check references in order to gain a greater understanding of the markets, products and people involved. During this more advanced investigation, we will talk frequently with management, and endeavor to understand thier motivations, goals and capabilities.
A commitment may take as little as two weeks, although six to eight weeks is typical. Arrangements may add another two weeks. Often Polaris may wish to postpone a decision for more that a year to watch a company develop.
An investment in a young company entails a long relationship between the management and Polaris. Just as we evaluate a management team and their planed, it is equally important that management make a careful evaluation of the Polaris partner, so that the company management can develop the same trust, confidence and respect for Polaris as the partners have developed for management.
ADVICE FOR THE ENTREPRENEUR
Finally, Advice for the Entrepreneur
A successful entrepreneur must be:
- Honest, and knowledgeable in his field
- Highly energetic to run ahead of the pack
- Confident that he or she will inevitably succeed
- Courageous to keep forging ahead
- Resourceful in making use of limited resources
- Creative in his approach to the business
- Persistent, patient and persevering
- Sensitive to people's needs
- A winner
MANAGEMENT
Management
Polaris is managed by 3 general partners, Timothy C. Draper, James A. Lynch, and James M. Yarmon.
Tim Draper is an experienced seed venture capitalist with an outstanding record creating new companies with Draper Associates, and an extensive network of industry contacts. He has a BS in electrical engineering from Stanford University and an MBA from the Harvard Business School. He has worked as Marketing Engineer for Hewlett Packard and was the Assistant to the President at Apollo Computer. He worked in high technology corporate finance with Alex Brown & Sons before managing Draper Associates. He is on the Boards of Cypress Research, Preview Media, Upside Publishing, PLX Technology, MIS Inc., Amtel Video, Digidesign and The Churchill Club.
Jim Lynch has diverse experience in agricultural, real estate, and economic development. he has a BA (cum laude) from Yale University in Economics and a Harvard MBA. He has worked as a faculty member in economic development for INCAE in Managua, Nicaragua, as Director of the Management Program in Agricultural Policy at CIMMYT in Mexico City, Mexico, and as a Partner with Cousins, Lynch Associates a real estate development firm in Boston, MA. He has co-authored a book on Food Production and Public Policy in Developing Countries.
Jim Yarmon has extensive real estate investment experience and since 1981 has ben located in Anchorage with Yarmon Investments. He has a BA. from Dartmouth College, a JD from Colombia Law School, and an MBA from Amos Tuck. He has worked in tax shelter investments at the U.S. Trust Company of New York, in real estate investment banking for Eastdil Realty, and in real estate development for Eljim Realty. He also serves on the boards of several Anchorage community associations.
CONTACTING THE POLARIS FUND MANAGERS
Tim Draper
Draper Associates
400 Seaport Court, #250
Redwood City, CA 94063
(415) 599-9000
Jim Lynch
Jim Lynch and Associates
1800 McLennan Farm Road
Chapel Hill, NC 27514
(919) 933-8478
Jim Yarmon
Yarmon Investments
840 K Street #201
Anchorage, Ak 99501
(907) 276-4466