I travel the country working with angel investors and always hear the same thing. I want to invest in companies that will impact my community. But, I want to invest in opportunities that will bring me much-better-than-market returns.
These two goals sound at odds at first glance. What would you expect to see in small town America that would rival deals in Silicon Valley, Boston, etc? More than you would ever imagine. The answer will surprise you – Forbes and Scoble.
First, a few case studies:
- General Graphene located in Oak Ridge, TN. This company has perfected the manufacture of large sheet graphene, a material that will impact everything around you. This technology was originally developed at the US Dept. of Energy’s Oak Ridge National Laboratory and exclusively licensed to a team of serial entrepreneurs with six successful exits to their credit.
- YOST Labs located in Portsmouth, OH. Shawnee State University is the number 8 gaming educational program in the nation, ranked above Carnegie Mellon and MIT (Princeton Review). Out of this program comes a 3D positioning sensor that allows for real-time gaming, simulation, medial applications, etc. The technology is licensed to YOST Labs, Inc. and is setting a new standard for low latency sensing, the key breakthrough required to fully realize the benefits of virtual reality.
- Gamma2 Robotics located in Denver, CO. G2R has a revolutionary, autonomous robot for facility security. The robot is capable of problem solving autonomously with a vast array of sensing technology capable of differentiating friend from foe. The technology was created by two brilliant engineers and is now on its way to market.
- Pandoodle located in Columbia, SC. Pandoodle has developed a means of inserting video into real-time post-production streaming video that can be customized to demographic of the user. This will revolutionize how we consume advertising and how content creators monetize their work.
- Nitride Solutions located in Wichita, KS. Nitride has developed a revolutionary capability to create single crystal aluminum nitride columns ready for substrate material for tomorrow’s LED technology. This material is a nearly perfect material for ultraviolet LED’s and other energy switching technologies.
These companies represent fundamental changes in science and technology and they are located in your backyard. These opportunities abound when you start to look for them. Once you put a stake in the ground, others will know where to find you. This is the reason Angel Capital Group exits.
So, why is this?
First, we continually see innovations, fundamental shifts in science and technology coming from universities, laboratories, etc. We often refer to these as campuses or college communities (There is that word again….). There are fountains of intellectual property all across the country, well distributed, and often in second and third tier metros. Second, we are witnessing the growth of a vast array of brick n’ mortar and virtual accelerators (Ascend, GAN, Seed-DB) that are minting bright-eyed entrepreneurs left and right. Third, there is a staggering body of tools available (Steve Blank) to entrepreneurs – collegiate programs, tools, platforms, grass-roots entrepreneur support and networking organizations like Entrepreneurs of Knoxville. Fourth, the tools to market a venture, fund, or community activity are unprecedented: Facebook, LinkedIn, Twitter, Instagram, Pinterest, etc. For modest budgets, even a bootstrapped startup can afford to capture a national audience of potential clients. Finally, capital creation in the heartland is on the rise. We see new microventure and venture funds forming constantly. According to the Halo Report, median valuations and median investment sizes were growing through the last half of 2015.
You no longer have to be on Wall Street to invest in the stock market. You no longer have to live in Silicon Valley to access great talent, great deals, and investment capital. These industries have been democratized in the age of the internet. With that trend, we are witnessing the resurgence of the American community and dream. People work where they want to live now, not vice versa as we saw in the pre-internet boom era. New York is not the draw it was 30 years ago. The reality is young professionals want a “paradise” in the Richard Florida sense (Rise of the Creative Class). They want access to natural amenities, green spaces, and environmentally conscious communities, but with high speed internet, such as Chattanooga’s Gig City initiative, and code schools!
The question remains, how can I create impact in my community and receive miraculous returns lauded by the angel capital industry?
The answer is simple. Be the best investor you can be. The process is likewise straightforward (notice I did not say EASY!):
- Create a high performing angel group:
- Member/investor driven decisions
- Committed capital
- A process for finding, vetting, and investing in a timely fashion
- Diverse investor membership
- A membership that believes in leveraging personal networks
- A disciplined investment process to reduce risk
- Diversified portfolio of investments to spread risk
- Individual side-by-side investment opportunities in portfolio companies
- Engage in national syndicates of angel groups and funds for access to great minds, dealflow, and professional support
- Invest in a balanced approach, one third local deals, one third regional deals, and one third at-large deals from around the nation.
- Create and take advantage of individual sidecar investment opportunities to build a personal portfolio of private equity deals.
- Focus on your returns. If you are successful at this, others will follow you. This will drive more investment and Collins’ proverbial “flywheel” will indeed begin to accelerate.
The two seemingly opposing goals (“beliefs” if you are a Simon Sinek Start with the Why fan) are intertwined. This is not a social welfare program. It is the most amazing opportunity available: to give back to your community and to potentially profit at the same time, to do what is right and be rewarded. That is the American dream! If you succeed as an investor, you become an ambassador for others to follow your lead. Your community will celebrate your success and your community economic development efforts will accelerate. The opposite is also true.
As a rule, I never bet against American ingenuity and drive for innovation. There is no more powerful force that American drive for success. And, there is an almost inexhaustible supply of great minds with great ideas. I see this every day. The number of exciting opportunities far outpaces the dollars that can invest. This is to say it is a target rich environment if you have the right game plan. And, it is not a community competition! As ventures in your community begin to lift, they will lure in other entrepreneurs, businesses, and potentially create industries that will be fed by downstream suppliers to support business growth locally and regionally. By working together, deserving companies get the funding they need to create new centers of innovation and commercialization. As they say, a rising tide lifts all ships.
The angel capital market is a $25B industry in any given year. Traditionally, this was controlled by the coasts. Now, we see the power shifting. In 2015, California only controlled 21% of the angel investing in the nation, followed by the Upper Midwest, New England, Texas, Southeast, Southeast, Mid Atlantic, New York, Northwest, and Central West (Halo Report). This represents a major shift in the traditional patterns of investing activity and is being driven by angel groups in towns just like yours.
Create the community you deserve by being the best investor you can be. It is not an overnight solution, but the dividends will pay returns for decades to come. You will create wealth, jobs, businesses, and potentially industries the “creative class” will embrace in the new economy. You will create a new echelon of leaders in your community. Finally, you will have the pleasure of being part of the growth of our national economy based on real value and the resurgence of the great American community and dream. It only takes a few visionary leaders to push the bolder off the hill. Become one.
Copyright Eric L. Dobson, 2016