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Monday, March 31, 2014

Tom Still: Angels in the cornfields: Investing not just a big-city game


By Tom Still
Inside the Nohr Art Gallery on the UW-Platteville campus, 15 or so people gathered last week to talk about a lot more than the paintings and photographs on the walls.

The group included business people from the region, which includes southwest Wisconsin and nearby Dubuque, who have succeeded in agriculture, communications, software and engineering. It also included campus leaders who wanted to know more about how to channel student and faculty interest in entrepreneurism.

The topic was angel investing, a subject usually discussed on the nation's coasts and larger cities, but increasingly part of the conversation in states such as Wisconsin.

At the invitation of UW-Platteville Chancellor Dennis Shields, the group heard about trends in angel investing nationally and in Wisconsin. It was part of an "Investors' Edge" presentation by the Wisconsin Angel Network, which is part of the Wisconsin Technology Council.

What are angel investors? No, they're not spiritual beings come down from above with celestial cash. They are accredited high-net-worth individuals who invest money, time and their own expertise in startup business ventures. Angels typically do so early in a company's lifespan – before venture capitalists enter the picture – in hopes of realizing a sizable financial gain over time.

The "angel" part comes into play because these investors are typically entrepreneurs themselves who care about sharing their good fortune and experience with others. Return on investment is No. 1 on any angel's priority list, of course, but enlightened self-interest side often enters the equation, as well.

That's because angel investing is predominantly a local sport, as demonstrated by the annual "Halo Report" released this week at a meeting of the Angel Capital Association.

The 2013 report charted the size of typical angel deals (about $600,000 nationally), total estimated volume of deals, popular investment sectors – such as health care, Internet and mobile – and leading angel network and funds across the United States.

Most of those networks are clustered in California, Texas, Boston and other coastal bastions, as might be expected. However, a trend noted in the report was the strength of angel investing in the Great Lakes region that includes Wisconsin.

While California led with 18.6 percent of all angel deals, the Great Lakes region was second at 11.8 percent of deal flow. That was slightly ahead of the Southeast (11.7 percent) and New England (11.3 percent), with New York, the Mid-Atlantic, Texas and the Northwest all falling in the 8 to 9 percent range.

In Wisconsin, the rise of angel networks began about 15 years ago with the formation of groups such as Wisconsin Investment Partners in Madison, Origin Investments in La Crosse, Silicon Pastures in Milwaukee and Golden Angels in Milwaukee. The advent of state tax credits for angels who invest in specific "qualified" companies has helped drive up total investments from a few million dollars per year to more than $60 million in a typical year, all in young companies.

Today, there are roughly two-dozen active angel groups in Wisconsin, as well as some later stage funds and corporate investors. The Wisconsin Angel Network (http://www.wisconsinangelnetwork.com) helps provide access to deals and networking for all of them, and has been a part of helping form or renew networks in places that might seem off the beaten path.

Ten years ago in Wisconsin, there were only two angel networks outside Milwaukee or Madison. Today, there are a dozen in communities such as Marshfield, Eau Claire, Oshkosh, Vilas County, Wausau and beyond.

Angel networks are typically a group of investors who meet periodically to review and co-invest in business opportunities, with no requirement that each member invests in every deal. Angel funds are more formal structures in which each member invests in the fund – and the fund collectively selects the deals. Such groups increase the quality and quantity of deals that can be reviewed, spread the costs of due diligence before any investment are made, and create more co-investment opportunities.

Also, entrepreneurs can draw some comfort in dealing with networks and funds because they know the investors are "accredited," which means they meet certain income and net worth requirements. Investments made by accredited investors exempt the entrepreneur from certain federal filing requirements and regulations.

Not every community is ripe for an angel network by a longshot. For those places that meet certain self-imposed tests, however, it's one more way to build economic strength close to home. It's not for the faint of heart, but Wisconsin is proving that angel investing need not be just for the big cities and states, either.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.

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