1. Who are your Members and how many are there?
Members are entrepreneurs, senior executives, family offices, and business professionals. The majority of Members live within a few hours drive of Boston, but we do have members in Europe, Asia, the Middle East, and Latin America. We do not publish a list of our Members out of respect for their privacy. If a Member chooses to disclose his/her affiliation with Hub, they are welcome to do so. In the four Hub funds, we have more than 95 Members.
2. How do you generate unique deal flow?
The two Managing Directors generate about 80% of the Hub deal flow through their Boston-area networks developed over the past 25 years. This network includes key channels of innovation from leading local universities and academic medical centers, like MIT, Harvard and BU; to the venture capital and private equity communities; to the professional services communities; to the large and medium-sized companies in the area. The Members of Hub also provide a meaningful contribution to deal flow through their own networks. The development of the Hub brand over the past six years makes an important difference in generating the right kind of deal flow for us. As an organized angel fund, we have consistently invested during both up and down economic cycles. With a reserve to our funds, we follow our money. Because we invest as a fund, we keep the capitalization table cleaner. These are important factors for entrepreneurs who like to know that their early stage financiers will be with them for the long haul. In addition, it makes it easier for companies to raise future rounds if existing investors follow their money. For our investors, having dry powder enables us to protect our ownership and preferred rights across capital rounds.
Hub does not accept unsolicited plans. Every plan that we review comes through our trusted network.
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3. What are you looking for in investment opportunities?
Like nearly every investment group, we look for the basics, including the following: big market opportunity, core management team, and unique product/service with barriers to entry. We focus on the quality of the management first and foremost. No matter how dynamic a technology might be, every company's success is largely determined by the ability of the company's management to execute a business plan and adapt to a changing environment. We believe in a diversified portfolio, so we invest in companies at different (but all early) stages, across industry sectors where our collective Members have expertise, and by capital requirements. Capital efficiency continues to be an important factor. Companies that need under $5M-$8M of capital to exit are attractive. In these cases, the 20+ angel groups and small VCs in the region are able to syndicate deals and to meet the capital need. This can provide company founders with a larger percent ownership in their companies and lead to faster exits.
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4. Who performs the due diligence?
Following a tried and true methodology, the Managing Directors run each due diligence effort, and are supported by volunteers from the Membership. Frequently, Hub will engage industry and academic experts to help with diligence (particularly technology and markets), and oftentimes this includes legal review of patents, CEO behavioral analysis, and background checks of the senior management. Members with domain expertise typically volunteer to support the due diligence of a company in their area. There is no requirement that any Member participate in due diligence. People go where their time, expertise and interest takes them. In addition, many times our extensive networks contain talent and expertise which we tap.
5. How does the Hub investment process work?
The Hub process begins with screening deal flow by the Managing Directors. There are typically two screening sessions before each meeting. The final screening session concludes with consensus around three companies which are invited to present at a Hub Investment meeting. At the Investment meeting each company will present for 15 minutes, answer questions for another 15 minutes, and will leave the room. The Hub Group then discusses the opportunity and polls the group about whether a due diligence team should be formed to explore the opportunity in greater detail. If a due diligence team is chosen, they typically take 90-120 days to complete their effort and make a recommendation to the Management Group and the Membership. A final conference call with the CEO of the prospect company is arranged so that Members can ask any questions, formulate their vote (each Member is on the "Investment Committee"), and determine if they would like to co-invest. A vote by electronic proxy is then taken of the entire Membership. A simple majority in favor triggers final negotiation of the terms and an investment at an agreed upon closing date. Typically about 25 companies are reviewed for each meeting, 3 present, 2 go into due diligence, and an investment is made in less than 25% that go into diligence.
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6. Does Hub follow its money?
Hub reserves nearly half of the Fund to follow its money in subsequent rounds of financing. We believe that life cycle investing is important for both the company and investors. It allows Hub to protect its position, limit ownership dilution, and maintain our negotiated terms.
7. Have you had any exits?
The remaining 16 portfolio companies are viable, with several preparing for positive exits. This is a strong showing in what has been a difficult investment period. In general, Hub carries all investments at cost unless there is a financial event that changes the valuation. This would include a subsequent round of funding or if there is an exit or write off. In general, we expect to hold a company for 4 to 8 years.
Of 26 investments since 2000, Hub has had four significant exits including Zipcar's IPO and acquisition of CircleLending, Experion and Catalyst Oncology. We have written off six companies to date.
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8. How does Hub keep its Members informed?
Hub communicates with its Membership in a number of ways. We have six meetings each year. At the beginning of each meeting there is an update on the portfolio companies and any company in due diligence. At the end of each quarter the Management Group writes a detailed Portfolio Report and distributes it to the Membership. Each portfolio company has a "Guardian Angel" who typically sits on the Board of the company, and they are a tremendous resource to the company and the Membership. At the end of the calendar year, the Management Group distributes a summary of the finances of the Fund and Management Company. Either Managing Partner is available via email or phone at any time to answer questions about the Funding's holdings.
9. Am I able to co-invest in Hub portfolio companies?
Members are invited to co-invest in any portfolio company if there is subscription room. In fact, it helps the Managers of the Fund to negotiate better terms when the amount we are collectively investing is higher. There is no expectation or pressure for Members to make co-investments. There is no charge or carry against co-investments. Co-investment is a way for Members to "load up" on ownership in any company that the Fund invests in, while enjoying the diversification of that the Fund provides them.
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10. What differentiates Hub from the other investment groups in Boston?
There are a number of excellent angel groups in the Boston area, and we communicate regularly to share best practices and to syndicate investment opportunities. Yet each has differentiators--some have an industry sector focus (MassMedical), some invest as individuals (LaunchPad and Walnut), some invest as individuals and have a fund (Common Angels and Hub). Hub invests across industry sectors. Hub invests as a fund, and follows its money. There are also a large number of venture capital and private equity groups in Boston. They tend to attract more institutional capital and rarely provide visibility into portfolio companies. Hub is an active group, with complete transparency and participation in the investment process. Members are invited to co-invest in those portfolio companies that they like.
11. How is Hub managed?
Hub has a Management Company (LLC) that is run by Charles Cameron and David Verrill, the general partners. Supporting the Management Group are three committees--Membership, Investment, and Advisory. The Membership Committee assists in identifying and qualifying new Members. The Investment Committee assists portfolio companies in planning, crafting, and implementing their exit. The Advisory Committee provides advice and policy for the Fund and Management Group. The Management Company manages the capital that is held in a separate LLC.
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