Archive for May 2014

By David Verrill, ACA Chairman and Managing Director, Hub Investment Group

The US Securities and Exchange Commission has been tasked (every four years by virtue of the Dodd-Frank Act) to review the thresholds of wealth and income that determine whether or not an individual is accredited “for the protection of investors, in the public interest, and in light of the economy”. The definition of accredited investor hasn’t changed a lot in several decades – a point of fact that has motivated many to say that by virtue of the cost of living increases alone over that time the levels should be roughly doubled to $450,000 in income and $2.5 million in net worth (not including your primary residence). While the logic of math is plausible, these increases address none of the reasons why accreditation should be changed – to protect investors, in the public interest, and in light of the economy. Let’s take a look at each of these.

  • To protect investors. There is almost no fraud in the angel and early stage investment space, so increasing the levels of wealth and income more than likely won’t reduce fraud. I get it that the SEC needs to focus on fraud. They are looking at a broad array of investment types in contemplating accreditation, including VC and PE funds, REITs, hedge funds, etc. Unfortunately there have been some devastating fraud cases in some of those worlds. However, let’s not throw the baby out with the bath water. Let’s address fraud where it exists, not where it doesn’t.

An Interview With: Li Han Chan, DynaOptics

DynaOptics is an innovative startup backed by ACA member group, Sierra Angels who led the investment. Co-founder and CEO Li Han Chan talked to ACA about the importance of angel investing to their business.

Tell us about your business: DynaOptics was founded in 2012. We currently have seven full time employees and offices in Sunnyvale, CA and Singapore. We’re a miniature optics company bringing to market an optical zoom system housed entirely within the slim profile of today's mobile phones. Our technology is able to achieve the performance and manufacturability of today's lens systems, without its bulky footprint.

Describe the impact angel investment has had on your business:

Angel investment was critical for us in at least three ways:

1. Financially – the investment enabled the commercialization of an extremely innovative, high-potential technology. We have utilized the financial resources made available by the Angels to hire full-time engineers dedicated to solving the problems that come with employing this technology in a mass-market product. The resources have also allowed us to actively engage customers to ensure we were solving their critical pain points.

In case you haven’t heard, the SEC will revisit the definition of accredited investor soon and there is a possibility the financial thresholds could be raised so much that 60 percent of all accredited angel investors would no longer qualify to make angel investments. If this happened, this would have a huge impact on the high-growth startups that create the majority of jobs and innovations in this country.

We need angels, entrepreneurs, and all parts of the startup ecosystem to let the SEC know how important it is to keep the angel capital pool large and healthy. ACA has created a set of letter templates and other information so you can easily write the SEC and other policy makers. Check out our “Protect Angel Funding” web page for all details.

At issue is the potential for the SEC to raise the financial thresholds for individual accredited investors for inflation – so net worth requirements could increase from $1 million to $2.5 million and annual income thresholds could grow from $200,000 per to about $450,000. By the SEC’s own estimates, about 60 percent of households would no longer meet accredited investor requirements with the net worth increase alone. 

By: Sarah Dickey, ACA Membership Director

Congratulations Upstate Carolina Angel Network on an 11X Exit with Selah Genomics!

Editor’s Note: Welcome to a new periodic feature – ACA Member Exits. We want to help you share the great news about your exits with your ACA colleagues and the public. Please send funding and exit news to ACA so we may share it and if you have any questions about this feature please contact Sarah Dickey.

ACA member group Upstate Carolina Angel Network (UCAN) of Greenville, SC is celebrating their April 2014 11X exit of Selah Genomics. UCAN is an angel network of about 50 members that has invested over $9 million in 33 companies since forming in 2008. Selah Genomics has sold to EKF Diagnostics, a publically traded company in the United Kingdom. Selah Genomics is a molecular and clinical diagnostics company focused on personalized medicine. After a six-month lock-up and future earnout –for which the key milestones are largely in place – this $70 total acquisition could represent an ~11X exit for UCAN investors.

The foundation for this UCAN exit began at the group’s first presentation meeting in 2008. During that meeting the group met and invested in CEO Michael Bolick’s company – Selah Technologies. Although eventually sold in a private stock deal to Lab21, the original Salha acquisition has not yet brought liquidity to its investors. Fast forward to 2013 when, based on their previous working relationship, CEO Bolick approached UCAN for support in spinning out a new company and they gladly accepted the opportunity. As UCAN Director Matt Dunbar explained, “We knew the CEO Michael and we knew the business, so due diligence and the investment process moved quickly for us.”

Meet ACA Member Katherine O’Neill - ACA Board Member and New Jersey Angel Network Executive Director

Editor’s Note: Welcome to a new periodic feature – ACA Member Profiles. We want to help you create the connections you need and get to know ACA angels and groups with this glimpse into membership.  If you have any questions about this feature and/or have an idea for a future member profile please contact Sarah Dickey

How and when did you get involved in angel investing?
In 1998 and 1999 I was doing consulting for early stage bio-companies and was offered stock as payment. I still have some stock papers for companies that are no longer in business These were my first investments in early stage companies. I started to become active as a check-writing angel in 2003 when I joined Jumpstart New Jersey Angel Network. Jumpstart had just formed with a total of 12 members.

By: Sarah Dickey, ACA Membership Director

2014 has been a year of growth for ACA.  Over the past year ACA has focused on growing its footprint as the early-stage investment landscape has evolved.  ACA members now include accredited platforms and individual angels, in addition to angel groups. We are pleased to share with you the new ACA members. 

More than 12,000 active accredited investors now below to ACA - the most ever and making ACA the largest angel organization in the world. So far this year ACA has welcomed 30 new member groups across our long standing membership categories including Provisional Members (angel groups just being formed but not yet active), Full Members (active angel groups), and Affiliates (organizations that promote the growth of the angel investing field).  Representing 18 US states and one Canadian province, these new members are growing active capital in their communities to support innovative companies. 

A key part of ACA's growth is new member categories: accredited platforms, equity marketplaces focused on accredited investors, and individual investors.  Eleven accredited platforms have joined ACA this year.  AngelList, FundersClub, and SeedInvest were the first three and now many new organizations are forming and joining. 

Individuals who are not connected to angel groups are also new to ACA and we are happy that these angels from 18 US states and one Canadian province are now members. For their privacy, we are not sharing their names and contact information.  

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Tapping into America’s Biomedical Seed Fund by Ethel Rubin  on  February 12
The Seraf Method to Valuing Startups: Exit Practicalities by Ham and Christopher LM  on  January 16