Texas Angel Investors to Form Alliance

By SHERYL JEAN / The Dallas Morning News sjean@dallasnews.com
Published 03 October 2010 10:23 AM

Angel investor groups across Texas are forming an alliance to attract more investors, make larger joint investments in young companies and simplify the process for entrepreneurs.

“Our goal is to make it easier for entrepreneurs to get their deal in front of multiple angel networks,” said Jamie Rhodes, chairman of the Central Texas Angel Network in Austin who is leading efforts to launch the alliance. “This is incredibly important, since angel investing is such a major part of the economy, which is in the doldrums. Start-ups create the vast majority of jobs in the nation.”At least seven of 18 Texas angel groups are backing the nonprofit alliance, which should be formalized next year under the potential name Alliance of Texas Angel Networks. In addition to Rhodes’ group, the alliance includes the Baylor, Concho Valley, Houston, North Texas, South Texas and West Texas angel networks.

Angel investors in other states also are uniting to catalyze innovation through more private investment. States, such as Georgia and Wisconsin, have taken the lead by adding or beefing up tax credits for angel investment. In other states, including Texas, it’s more grass-roots activity.

“We’re seeing more efforts to … co-invest so there’s enough money to help the really promising entrepreneurs,” said Marianne Hudson, executive director of the Angel Capital Association.

Dallas entrepreneur John McGinnis thinks the alliance will make a difference.

“If I don’t have to fill out each angel form and pay each application fee, and if I know [my application] will be passed around to several angel groups, then that’s all the better for me,” said McGinnis, chief executive of KayPat Enterprises, a technology innovation company focused on LED lighting systems. The 2-year-old company has not raised any money from angel investors.

Angel investments often are the first outside equity – from other than family and friends – a young company gets.

Angel investors typically are wealthy individuals who invest their own money in start-up and young companies that banks consider too risky and venture capitalists consider too young. In comparison, venture capitalists mainly provide money raised from other investors and lean toward later-stage companies.

While the number of angel groups nationwide has tripled in the last decade, the recession has prompted fewer and smaller investments as angels’ net worth has declined, and they’ve become more cautious. Overall, there are about 12,000 angel investors, according to the Angel Capital Association.

U.S. angels invested $17.6 billion in 57,225 companies last year, compared with $19.2 billion in 55,480 companies in 2008, according to the Center for Venture Research at the University of New Hampshire.

The Texas alliance of angel groups “will be an opportunity to easily syndicate deals as we try to assemble enough dollars to fund a particular start-up,” said Chuck McCoy, executive director of the North Texas Angel Network in Dallas. Angel groups typically invest up to $2 million in a company, but last year’s average was $218,131.

This year, the North Texas angel group has invested less than $150,000 in three companies vs. $750,000 in six companies in 2009, McCoy said. WHO ARE ANGEL INVESTORS?

Angel investors are wealthy individuals who make equity investments in start-up and young companies. Angels often form networks or groups to look at – and possibly fund – potential deals together.

Here are characteristics of angels and their investments:

  • Angels invest their own money. They have net worth of at least $1 million and annual incomes exceeding $200,000 a year.
  • The number of U.S. angel groups has tripled since 1999 to about 325, representing 12,000 investors.
  • The average angel group has 42 investors.
  • Angel-backed businesses include Amazon, Costco, Facebook, Google , PayPal, Starbucks and Yahoo.
  • Each angel group made an average 6.3 investments last year vs. 7.3 in 2007.
  • The average angel group investment was $218,131 in 2009, down from $265,926 in 2007.
  • Angels helped create 250,000 jobs in 2009, or about 5 percent of all new jobs that year.
  • Investors in angel groups saw an average 27 percent internal rate of return on their investments in 2007
  • Angel investors lost their capital in slightly more than half of all investments in 2007 because companies failed.
SOURCES: Angel Capital Association, Angel Capital Education Foundation, Ewing Marion Kauffman Foundation, University of New Hampshire’s Center for Venture Research
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