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.
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.
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.