Ohio TechAngel Funds: Success by Aligning Entrepreneur and Angel Goals

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. 

How and when did you get involved in angel investing?
After ending my banking career, I thoroughly flunked retirement. I missed the excitement of working with CEOs and new ideas.  My first investment I made solo in 2000 in a life science venture.  The good news is that company is still operating.  The bad news is that after 14 years an exit is still not on the horizon.  I continued solo through 2004 but got tired of doing all the due diligence myself.  The many benefits of banding together with others on the cap table were obvious, but we didn’t have an angel group in Columbus so I thought launching one would be a fun second career.  We launched the first Ohio TechAngels Fund (OTAF) with 50 members in 2004.

What has been your favorite exit? 
So far I have enjoyed all eight of my positive exits, but my favorite is the one in which my return was infinite.  I was an advisor to a healthcare IT venture that did not need my capital.  However, the founders provided me phantom stock so when they had their lucrative exit I reaped, mathematically, an infinite return.        

What kinds of deals do you focus on for your personal investing?
I invest solely on Ohio based technology IT and life science companies which mirrors OTAF’s focus.  Today most of my investing activities come through OTAF, and our investment pace is 4 – 6 new deals a year.  I may add one or two a year outside of OTAF. 

Could tell me a little about your ACA member group / your investing history? 
Since 2004 OTAF has invested over $20 million in 45 Ohio tech companies. Designed as a series of funds, OTAF IV launched this, bringing 50 new members to our group which now totals 340.  Our members are ex CEOs and C suite officers as sell as current CEOs.  We have a wide range of ages – from 30 to 80 – and currently 50 of our members are women. 

What kind of deal or company attracts OTAF investment?
We especially like unique IT plays that are highly capital efficient, but have the most important characteristic of sincerely sharing ECG……Exit Goal Congruence.  Our group’s motto is “Turning great ideas into prized companies to build Ohio’s entrepreneurial wealth.”  Every time we have made our entrepreneurs wealthy we have exceeded our investment return hurdle rate.

 How has the investment strategy or activity changed across the four OTAF Funds?
In our first fund we invested $150,000 with an additional $75,000 of dry powder for a maximum of $225,000 per investee.  Our fourth fund is now investing up to $500,000 per company.  This enables us to lead larger rounds, which buys more runway, which theoretically should improve our results.

What has been the impact of syndication on your deals in Ohio?  
Ohio rounds are routinely sized from $1.0M to $1.5M so syndication with the seven other groups across Oho is the standard for almost every deal. We have led most of our deals but appreciate the deal flow brought to us by Tech Columbus, North Coast Angel Funds, and Queen City Angels. 

What has changed in the way angels in your area are investing over the last few years?
Two major changes are an increased focus on capital efficiency plus more precisely sizing the rounds to enable achieving positive cash flow.  And, as I have mentioned, we work hard to ensure that the entrepreneur shares our definition of success.

What is the most important issue or trend for angels and entrepreneurs to be aware of in the next year?
I think the biggest concerns for angels are the changes in the general solicitation rules and the interpretation thereof.   These rules pose a burden to entrepreneurs with significant consequences if they run afoul of them. 

 In addition, entrepreneurs need to be aware of “Stranger Danger.”  I think that not knowing all the investors on your cap table is the biggest risk in crowdfunding.  Entrepreneurs should be wary of taking money from hobbyist angels who may not understand the odds that the venture will struggle at some point.  The only commonality among OTAF’s lucrative exits is that they all were woefully wobbly at least once.  Angels who attend Angel Capital Association (ACA) and Angel Resource Institute (ARI) events know the value of having seasoned co-investors.