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Angel Insights Blog

Serving as the voice of the North American angel community, the Angel Capital Association is pleased to bring you our Angel Insights Blog, featuring commentary on startup investment trends, the latest on public policy affecting entrepreneurial investment, and other topics top of mind to active accredited investors.

We encourage you to participate in the discussion.

By: George Bittlingmayer, professor of finance at the University of Kansas and member of Mid-America Angels

This blog post originally appeared as a column in RealClearMarkets 

The startup scene in Kansas City has grown by leaps and bounds in recent years, mirroring the upswing in cities nationwide. In fact, the big, welcome news of the last decade is that tech innovation hubs have expanded beyond Silicon Valley to cities from Austin to Pittsburgh and Boulder to Nashville. Unfortunately, those new, thriving ecosystems of entrepreneurs, incubators and early-stage investors may soon hit a headwind blowing in from Washington, D.C.

Angel investors, the first and often crucial providers of funding for high-growth startups, provided $24.8 billion in growth capital last year, not too far behind the $29.6 billion that came from venture capital. While the overall amounts are similar, angel investors play a distinct role, typically funding businesses earlier and with smaller amounts per company.

ACA interview of John Huston, angel investor, founder and manager of Ohio TechAngel Funds and ACA Chair Emeritus.  The group will host the 2014 ACA Leadership Workshop in Columbus, Ohio.

Editor’s note:  Get to know John Huston and other ACA members via periodic ACA member profiles.  If you have a great idea for this feature, please contact Sarah Dickey.

What should angels expect during the 2014 ACA Leadership Workshop in your hometown of Columbus September 17-19?

This meeting will be a great opportunity for angels to take their craft to the next level and to see the thinking and opportunities available in the Midwest. I am convinced this is the best agenda we have ever had.  I am extremely excited to have angels from throughout the North American ACA membership to fly in to Columbus and fly out energized.  I am particularly looking forward to the kickoff by Mark Kvamme, of Drive Capital which just raised a $250M VC fund focused on Midwest companies. 

By: Daniel N. Zucker and Jeffrey C. Wagner of McDermott Will & Emery

This blog post originally appeared in Venture Experts

Included in the American Taxpayer Relief Act of 2012 (ATRA) are provisions that extended some of the more significant benefits of Internal Revenue Code Section 1202, the Code provision that permits eligible noncorporate taxpayers to exclude from taxable income (within limits) a specified percentage of any gain from the sale or exchange of “qualified small business stock” (QSBS) held for more than five years. That percentage, which, when Section 1202 was first enacted in 1993, was 50 percent of the recognized gain from the sale of the QSBS, was increased to 100 percent of such gain for QSBS acquired after September 27, 2010, and before December 31, 2010. The 100 percent exclusion was extended through December 31, 2011, pursuant to the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. ATRA retroactively extended the 100 percent exclusion for QSBS acquired in 2012 and 2013. More importantly (to some), ATRA also extended the rule that excluded that gain not only for regular income tax purposes but for alternative minimum tax (AMT) purposes as well.

By: Robert Fisher, CEO of Fisher Tanner Associates. He is a member of Ohio Tech Angels, X-Squared Angels, and the Angel Capital Association.

With speed approaching perilously close to that of light itself, recent deregulation has freed huge and heretofore inaccessible pools of private monies to fund new investment and unshackle innovation.

Just kidding – that didn’t happen. Would have been nice, eh? One could argue it wasn’t for lack of good legislative intention.  As part of the JOBS act – Congress did indeed instruct the SEC to remove the ancient prohibition against General Solicitation and Advertising under Regulation D. The concept: make it easier for start-ups to cast a wide net when seeking investors. You may recall good ol’ Reg D which provides exemptions from SEC registration. The Reg D exemption relied on by most private investors – now called 506(b) continues the solicitation ban. The new exemption since last September – 506(c) – eliminates the ban but not without a new gotcha of its own.

By: Marianne Hudson, ACA Executive Director

In recognition of the importance of innovative startups, several Congressmen and Senators have established Startup Day Across America, as a way to celebrate and meet with startup companies while they are in their home states and districts. This is a great time for ACA members to contact their Congressmen and suggest they visit a portfolio company or attend an angel roundtable. The official day is August 5th, but any day in August will work.

More and more Congressmen and Senators understand the importance of innovative startups to America’s economy, and some are also noting how angel investors support these job creators. I believe it is important to grow that understanding in our legislators and encourage ACA members to reach out to your US Representatives and Senators to meet with you and your portfolio companies during their August recess – many of them really enjoy talking with their constituent entrepreneurs and investors! Such a meeting can also bring local media attention to your angel group and portfolio companies, if you choose to promote it.

By: Eric Liu, PHD/MD student at the University of Oxford

Editor's Note: Eric Liu is a DPhil student in Medical Oncology at the University of Oxford. Last year he served an internship at ACA member Life Science Angels, where he had a front seat in medical entrepreneurship and also provided valuable work for the angel group. Since his angel internship he has taken an internship with the Head of Global Strategy and Regulation of Bayer Healthcare. He highly recommends internships for young healthcare entrepreneurs, as you can see from his enthusiastic story.

Entrepreneurs that successfully utilize innovations shape much of our society today, making our lives a better place in an ever more challenging environment. With an aging population and skyrocketing healthcare bills globally, many healthcare entrepreneurs are using their brilliant minds to help address some of the most unmet medical needs.

By: Michael Cope, Founder of Cope Ventures 

Editor’s note: Michael Cope is a Dallas-based angel investor, mentor, and serial entrepreneur. He recently shared with ACA his letter to the SEC on potential changes to the accredited investor definition. He has compelling thoughts, and wanted others in the startup ecosystem to consider it as an example of letters they could write on this important topic.

The Honorable Mary Jo White, Chairman

US Securities and Exchange Commission
100 F St. NE
Washington, DC 20549

RE: Accredited Investor Definition

Dear Chairman White:

I am an independent Angel Investor and have been so for nearly 20 years, with multiple good exits under my belt. I earned the money that I invest by founding a business in 1974, operating it for 20 years including taking it public as a NASDAQ company in 1984. Since “retiring” in 1994 I have been involved in numerous early stage companies and helped many start ups get off the ground and on to success. I think I can be viewed as someone that the SEC, and the country in general, WANTS to see as an active Angel investor. Since my net worth is well above any threshold the SEC might set as a minimum to qualify as an Accredited Investor, I am not writing to protect myself, but rather to protect my numerous colleagues who are qualified based on their skill sets to judge the risks in early stage investments, and who have amassed more than $1M in net assets (not counting residential holdings) but may not have the $2.5M mark yet.

By: Alan S. Knitowski, Chairman, CEO & Co-Founder at Phunware, Inc.

Alan S. Knitowski is well versed in the world of entrepreneurship. Beyond experience as an angel investor and fund manager, Alan is a successful serial entrepreneur with multiple exits to companies such as Cisco Systems, Level 3 Communications and Internet Security Systems (now IBM). Currently Chairman and CEO of Phunware, which helps brands to engage, manage and monetize their customers across any connected device using its pioneering multiscreen as a service (MaaS) platform, Alan shared his perspective regarding the importance of accredited angel investors to his entrepreneurial success.

What role has angel capital played at Phunware?
Phunware was established in February 2009 and over the first five years we raised approximately $17.5M in angel money. In fact, this was the only type of external capital that we raised during our formative years as we purposefully chose not to take funding from any corporate, venture or institutional investors.

Because of the angel capital that we raised, we were able to achieve tremendous early success and literally exponential growth. The angel money enabled us to hire the people to build our platform and sustain our operations while we built out our sales organizations and filed patents vital to protecting the intellectual property of our business. The bigger balance sheet that we created with angel investment allowed us to grow both organically through our own efforts and inorganically through acquisitions as well. We now employ 230 people and were recently recognized as the fastest growing company in Central Texas (Austin Business Journal Fast50), the fourth fastest growing software company in the United States and the fortieth fastest growing company of any type in the United States (Inc. 500, 2013).

By: Ken Kousky, angel investor, Executive Director of BlueWater Angels (Midland, MI), and member of ACA’s public policy committee. We invite you to get to know Ken and other ACA members via this periodic feature. If you have a great idea for a member profile, please contact Sarah Dickey.

How and when did you get involved in angel investing?
I have been making angel investments since the 1980s before we called it angel investing. My company, Cache Data Products, was acquired by Novell when they went public. While I continued to work for Novell, I had the opportunity to meet and support startups that were in our networking infrastructure space. Most needed seed capital.

By: Elizabeth Hess, CFO at TRX Systems, an ACA member portfolio company that provides algorithms and products that deliver location indoors and underground, in areas where GPS is unreliable or unavailable. Elizabeth shares her thoughts about the potential change to the accredited angel definition based on her experience with angel funding at TRX and other entrepreneurial companies.  

The potential re-definition of Accredited Investors would drastically reduce the number of angel investors, barring many from participating in backing new ventures. This is of great concern to those early stage investors, and an even greater concern to the entrepreneurs who rely on them.

Early stage financing is the most difficult to obtain but it is the basis for everything. Entrepreneurs may do technical research, talk to customers, validate the market, and flesh out key elements of a business plan- but to progress beyond the “slideware” phase, they must hire employees and start the actual development work. Employees reasonably look for some indication of viability before signing on, both from a financial standpoint and a technical standpoint. Angels are willing to invest at this stage, before there are any real proof points, because of their background and experience, their ability to dive deep during due diligence, and to make an informed decision to invest. The angel investor provides both the funds to bring people on and the assurance that there has been some validation of the business concept.

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To Grow, We Must Let a Thousand Checkbooks Bloom by George Bittlingmayer  on  August 06
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