Below is a rare interview with some of Minnesota’s most active angel investors.
Where are you guys at 2+ years in?
MM: Buried deep as ever. We’re now categorizing our investment opportunities A-Z…who needs Silicon Valley when you’ve got the Twin Cities metro? Every day I talk with 2-3 entrepreneurs, it’s chock full of opportunity here for active investors like us.
So you’re in demand, but is the quality there?
MM: Yes. We’ve invested in about 13 companies since we started…we are well aware of the reject rate of 98%, but we’ve still backed a lot of local startups.
SC: I would mention we’ve certainly seen the Minnesota Angel Tax Credit make it more favorable, especially since you don’t have to be a Minnesota resident to use it.
How do you break down these investment opportunities by industry?
MM: 50-60% is SaaS technologies; 20% of what we see is 510k (med device). The rest consists of manufacturing, sensor and consumer goods and services.
Have you experienced any liquidity yet?
SC: Steady State Imaging was our first portfolio company, which was sold in April of 2011. We have portfolio companies that are pre-revenue all the way through $10m+.
How has your perspective on angel investing changed so far?
SC: One of the things we have gradually realized is that because there is not much competition amongst investors, and even those who are active are openly syndicating, we have shifted towards more of a staged investment strategy.
MM: It’s good old fashion syndication. First year we went out alone, second year we got into and and this year we are looking to nominally do 6 deals this year and get to about 20 deals. We have a long way to go but are going to be very active this year.
SC: The benefits of the syndication provides our fund with diversification and by working with a larger number of local companies, we can then top off the investment. Staged is an opportunity that we didn’t expect we’d be able to do much of, generally we’re seeing smaller rounds but more opportunity.
What themes or niches that you are interested in?
MM: Draw no conclusions, we will look at anything that comes in our door.
SC: We definitely are going to continue themes of healthcare services, software that can make healthcare more efficient. We also like Edutech. Delivering a savings or increasing an efficiency is always a business model that we like.
MM: Robotics, increasingly.
Who is your new advisory board member?
MM: Vikas…As we grow and add companies, we’ll also add advisors.
SC: I’ve known Vikas for 15 years from Vital Images, he’s a multifaceted individual who has been involved in fast growth startups before.
MM: It’s important that our advisors know what it’s like to be an entrepreneur, and that they can relate to the founders.
Have you ever considered doing an ‘entrepreneur in residence’ type of program?
MM: We’re interested in that, although we have not started such a program yet. We’ve amassed a good number of resumes.
SC: That said, our bias is to work with an existing team, we’re not looking to replace management.
What advice do you have for entrepreneur pitching you?
MM: Never be discouraged. Never give up the fight and always be positive.
Where does your fund stand right now financially?
MM: We’ve gone through about a third of our fund.
Is there anything else you would like to add?
MM: We are very committed to investing in the local startup community and we have been very impressed by the quality of the entrepreneurs that we have met. I have not yet had someone meet with us who wasn’t genuinely sincere and passionate about what they want to do.
SC: We like to proactively follow-up to consider re-engaging with entrepreneurs that have pitched us before. One company that we initially passed on, but we came back in on is Optimine.
MM: There’s another company that we are now engaged with who pitched us over 18 months ago. They have indicated that they have been able to deliver on their goals and objectives.