If raising capital is on your list of New Year's resolutions, angel investment clubs may help you connect your company to startup and growth capital networks. Angel investment clubs join together individuals with high net worth who have an appetite for investing in promising companies. Many clubs don't allow their members to be passive participants -- they have to invest in order to hear presentations about emerging ideas from passionate entrepreneurs.
It's OK if an angel investment club isn't located in your hometown, because most angel investors will consider promising investment opportunities within approximately 300 miles -- or no more than a day's car drive.
So, if you're gearing up to pitch to investors, here are some key trends in angel clubs to pay attention to in 2013:
- More clubs nationwide. At last there are angel investment clubs in every state of the U.S., plus in Washington, D.C. There are more choices within every region and every state, too. For example, in a relatively small state like Alabama, entrepreneurs can pitch the Auburn Angel Network, Central Gulf Coast Private Investor Network and Huntsville Angel Network. In South Dakota, entrepreneurs can solicit investors through Prairie Winds Capital, Great Opportunities and Enterprise Angels.
- Increasing optimism. I recently polled several angel investment club principals around the nation to learn how increasing capital gains and personal income tax rates for individuals in the top income tax bracket may affect 2013 angel investment activity. The good news is angel investment clubs anticipated changes to the tax laws. As long as interest rates remain low, angels will continue to allocate a portion of their investment portfolios to privately held companies with high investment growth potential.
Erica Duignan Minnihan, executive director of New York City-based STAR Angel Network, says, "The mood is optimistic. We hope to fund more deals this year and help our existing portfolio companies accelerate growth."
This sentiment was echoed by Kip McCoy of Central Illinois Angels. "Our overall pipeline is trending in a positive direction in both the quantity and quality of deals. We would probably make four to five investments this year in the $750,000 to $1 million range," says McCoy.
- Growing diversity. Women and minorities can raise capital for their companies … provided, of course, that they pursue it. In addition to women becoming active investors through angel investment clubs, they're joining groups made up of women investors or investing in women-managed businesses.
Belle Capital LP of Douglas, Michigan; Sofia Angel Fund in Minneapolis; Seraph Capital Forum in Seattle; Astia Angels in San Francisco; Women's Investment Network in Portland, Oregon; Women Investing Next in Pottstown, Pennsylvania; and Women's Capital Connection in Lenexa, Kansas, are some emerging leaders. Phenomenelle Angels Fund of Madison, Wisconsin, invests in women- and minority-owned businesses located in the Midwest. Minority Angel Investor Network invests in minority-owned or -led companies in the Mid-Atlantic states.
- Realistic valuations. What's going on in Silicon Valley in terms of deal valuations and media reporting doesn't influence investment activity in other regions of the U.S. Entrepreneurs who want to raise capital in 2013 in a timely way should present "realistic" valuations, especially for pre-revenue, seed-stage businesses. Entrepreneurs who have previously built up a company to a successful sale trump first-time entrepreneurs with a hot idea in terms of investor enthusiasm and deal negotiations.
- Industry diversity. Most active angel investment clubs in university towns and epicenters of entrepreneurial activity such as Silicon Valley, Austin, Boston and New York City continue to favor information technology, mobile media and e-commerce businesses. However, in recent years, angels have expanded their industry preferences to include more consumer, retail, clean technology, and health care deals.
Entrepreneurs can pitch single-sector clubs, too. Entrepreneurs who are building aviation or aerospace businesses can solicit the Space Angels Network in Leesburg, Virginia; clean tech entrepreneurs can pitch Clean Energy Venture Group in Boston; health industry entrepreneurs can pitch Health Care Angel Group in Houston or WINGS of Seattle. The Sustainable Local Food Investment Group funds innovative for-profit companies that can help create a sustainable food supply in the Chicago food chain.
The ripple effect
Angels invest for many reasons beyond making money. Many invest as a form of giving back to the communities that helped them succeed in business.
Since entrepreneurs typically boost hiring after receiving a round of investment capital from angels, I expect that more state public policymakers will collaborate with angels to stimulate new club formation in rural communities and around colleges and universities. That's good news for ambitious entrepreneurs who can benefit from the mentoring wisdom and cash that angels have to offer.