Angel Investing and Venture Capital

A new report from the Center for Venture Research (New Hampshire) reveals the amount of angel investing and venture capital investing in the U.S. last year. The San Francisco Business Times article says:

Last year, angels invested an estimated $18.1 billion in 42,000 deals, down from the historical average over the last decade of $30 billion invested per year in 50,000 ventures, according to figures compiled by the Center for Venture Research at the University of New Hampshire. By comparison, last year venture capitalists invested $18.2 billion, according to the National Venture Capital Association. But only 2 percent of that money went into seed or early-stage investments.

This is the key problem for most entrepreneurs. Most are not ready for venture capital. They need angels to back them early on and help them grow to the point of being ready for venture capital.

Yesterday I attended the NASVF (National Association of Seed and Venture Funds) conference in Salt Lake City at the Grand America hotel. This is an organization that focuses on early stage investing, whether it be from angels or early stage VCs. The conference was outstanding.

Keynote

Guy Kawasaki was the keynote speaker at lunch. As always he was outstanding. (He signed a copy of the Art of the Start for me. If you are an entrepreneur, you must read this book.)

How to Raise Your First Venture Fund

I attended a session on how to raise your first venture fund–a very difficult task. Greg Warnock of vSpring explained in detail how vSpring raised its first $120 million fund, from three main groups–private entrepreneurs they knew ($20 million), then SBIC funds ($70 million), then institutional investors such as Zions Bank, Wells Fargo, and Merrill Lynch (the remaining $30 million).

Angel Investor Groups

Bill Payne discussed Tech Coast Angels, a network of three angel groups based in Southern California that has 220- members who have invested $51 million in 80 companies. In this angel investment group model, each member pays $1,500 in annual dues; each venture associate pays $3,000 and sponsors pay $4,000.

Scott Frazier from Utah Angels described how this group of friends meets for social as well as financial purposes, and they have invested $13 million in 32 companies since 1997.

John May spoke about a managed angel investment fund called New Vantage Group which he runs. As fund manager, he does much of the screening work on potential investments. Members meet often and get to vote on which deals get funded. This is more like a venture fund — it charges a management fee of 2.5% and a carry interest similar to a venture fund.

All three angel groups seem to be generating good returns (I would say the average IRR sounds like about 19-20%) for investors, despite a few failures in each portfolio.

Civic Entrepreneurship

Will West and Ken Wooley, two Utah entrepreneurial luminaries, sat on a panel which discussed how to get entrepreneurs to give back to society (answer: “ask them”), and how to create civic entrepreneurs.

Will has raised about $200 million, or about 12% of the total private equity ever raised in the state of Utah. He said almost 98.5% of it came from outside the state. Two of his successful companies are STSN and Control4. Will sits on the Utah Fund of Funds committee which will appoint a manager to disperse about $100 million in state funds to venture capital firms who can give the state a good return and will be likely to invest some of these funds in Utah.

I’ve not met Ken before, but I blogged a few months ago about the IPO of Extra Space Storage, which I believe raised more money than any IPO in Utah history. He said yesterday that he started that company 25 years ago and is the chairman. Ken was also involved in Megahertz and started Mountain West College (a for-profit school) and he currently has 6-8 angel investments.

Every community needs successful entrepreneurs who are civic minded and try to make the world a better place. Utah is lucky to have Will West, Ken Wooley and others who are so desirous to give back.

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One Comment

  1. Dave Huntsman

    I truly appreciate this page. As a 30-yr NASA engineer who is contemplating possibly early retirement—they are trying to get rid of the riff-raff, starting with the older riff-raff– and I’m wrestling with what I want to do when I grow up. (Taking ‘a job’ with an aerospace major is not on my list; I’d rather cut my budget and eat less and lose weight for years than do that).
    Based on my current knowledge of where my industry is…where it is going (i.e, government and corporate trends right now), and yet where it ‘needs’ to go………I have very definite concerns that a lot of technology work that will be needed/mandatory for the human breakout into space to actually occur, ain’t gonna get done. (Why that is would take a whole ‘nother boring email).
    As a (small) investor in alternative energy companies, I started seeing a pattern after a while: one name kept cropping up, one Robert W. Shaw. Turns out he looked out towards the future as the 80s began, and set up a fund (which he is now closing, I hear, called Arete), to do something about the potential of things like fuel cells/solar/hydrogen, et al technologies; which, while ‘obvious’ now, was not so obvious to many/most in 1983. Going back through enough pages of several public and private companies, you’ll find his name as a, I guess, ‘angel’ investor at the beginning of many of them. He basically helped create the alternative energy industry. He still has an influence; being Chairman still of a couple, and having ‘participated’ in several, shall we say, ‘abrupt re-orgs’ of several others that were either underperforming, crashing, etc. etc.
    I’m fishing about on how to do for the ‘future’ space industry, what a Robert Shaw or maybe ‘angel’ investors have done for others; i.e, when the technology is not ‘there’ yet, to begin with, really; and won’t be for years–maybe never, if someone doesn’t do something.

    Space I ‘know’; including a decent feel for what might be needed going forward. Any thoughts on how I should view the financial side of whatever the hell it is I’m talking about? Does it fall within the ‘angel’ concept? Or earlier? Or, N/A?
    Space is difficult; mainly since for most technology/systems development….much less test…..a couple of guys working in a garage for free for a couple of years usually doesn’t hack it.(Though there are several groups-most of whom I’m directly familiar with–trying to develop their own rockets et al, as much as I admire them…e.g, Greason, Carnack, etc. — they aren’t by definition doing some of the stuff that will really be paradigm-changing. As Jim Benson, CEO of SpaceDev (and builder of the rocket engine that powerd SpaceShip One to win the Ansari X-Pri e) has said: even as a space entrepreneur since 1995–and now a profitable one– ‘I don’t do research; and I hardly do development’. (The hybrid motor technology he bought years ago, after a previous entrepreneurial company…American Rocket….went broke while (successfully) developing it to completion, It went sitting, unused, until Burt Rutan called, needing an engine for a then-secret project he was working on).
    Apologies for the diahrrea of the keyboard; any thoughts, at all, from your world upon reading this would be much appreciated.
    Happy New Year!
    Dave Huntsman
    Cleveland

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