By Scott Meacham
Copyright © 2014, The Oklahoma Publishing Company
It’s well documented that angel investors are the most important — and many times the only — source of desperately needed equity capital for startup companies.
The impact that angels have on entrepreneurial success beyond the checks they write may be less broadly understood.
With Oklahoma’s SeedStep Angels now in its sixth year of operation — the group has grown to about 50 members in chapters in Tulsa, Oklahoma City, Ardmore, and Muskogee — Oklahomans are gaining first-hand experience about the impact that accredited angel investors can have on a state’s ability to identify and de-risk promising early stage investments.
Angels put a lot more into a young company than their equity stake. They become active participants on the company’s board of directors and as mentors and advisers to the CEO and management team.
Angels help the portfolio company in all sorts of ways. They facilitate important industry connections. They may encourage local service providers to provide expertise at startup rates. They can assist young companies in forging strategic technology or distribution partnerships. They may help the company gain access to intellectual property through spinouts from corporations, universities, or research institutions. They mentor and offer seasoned advice on business and financial plans.
This type of involvement improves the odds that the new company will achieve the milestones that move it toward customers, revenue and breaking even.
And that contributes to angel investors’ returns.
Dave Berkus, one of the most active angel investors in the country, having actively participated in more than 87 technology investments during the past decade, was our featured speaker at the recent Entrepreneurial Summit. Dave met with Oklahoma angels, sharing with us his experience and success with angel investing (an internal rate of return of more than 95 percent).
A rate of return of 95-plus percent is close to off the charts, but according to national statistics, average returns to angel investors with diversified portfolios can be north of 20 percent.
Not only do angels stand to benefit from well-above average returns on their investments; they get the challenge and excitement of creating an entirely new company with an interesting, new technology or business model. Plus, they get the satisfaction of contributing to the community and state where they live by helping create new jobs and wealth.
Given these potential returns, it’s not surprising that nearly 50 savvy and accredited investors have joined SeedStep Angels so far. It’s an organized and efficient way to invest in this asset class, and the benefits are many.
Scott Meacham is president and CEO of i2E Inc., a nonprofit corporation that mentors many of the state’s technology-based startup companies. i2E receives state appropriations from the Oklahoma Center for the Advancement of Science and Technology. Contact Meacham at i2E_Comments@i2E.org.
DID YOU KNOW? As reported in the 2Q 2014 Halo Report, round sizes rose quarter to quarter nearly 20 percent to $2 million when angels syndicate with other types of co-investors.