I have been arguing for some time in this column (these blog posts are originally published as a column in the Idaho Statesman's Business Insider magazine) that an important component of the ecosystem for entrepreneurship is the availability of risk capital. I have also argued that using best practices, angel investments can produce nice returns to the angels in addition to helping entrepreneurs.
Here’s a report card of sorts on some of the Treasure Valley angel activity.
The Boise Angel Alliance was formed about 2003. Unfortunately, we didn't keep any investment records in the early days. But for the first five years there was relatively little activity. As a result, a group of us formed a “fund” to try to stimulate more investment. A fund is a limited liability company. The members of the fund agree to contribute cash capital to the fund as investments are made.
Our thought in forming the fund was that it would result in making investments since the cash would be in the bank waiting to be invested. A fund has the added advantage of spreading risk since each investor has a small piece of a number of investments.
We formed our first fund in the spring of 2007. Members agreed to contribute up to $50,000 each. We received commitments for $1,350,000 and began to invest. It took us five years to fully invest the first fund. Last year we formed the second fund. Coincidentally, we also received commitments for $1,350,000, so between the two funds up to $2,700,000 will be available to local entrepreneurs.
So what’s happened?
We have invested a modest amount of money outside the valley with partner angel groups around the northwest, but this article is about the local impact.
The two funds have invested to date a total of $1,535,000 into 14 Treasure Valley companies. Now that is not a large amount of money per company (our largest investment is $160,000 and our smallest is $25,000). But the money was generally invested early in the companies’ lives and helped the entrepreneurs move their companies to the next level. We haven't kept track of how much capital the companies have raised since we made our investments, but it is tens of millions of dollars more.
How have the companies done? All 14 are in business and continuing to execute their business plans. Some are growing rapidly; some are struggling to find the right path forward. But today all are still in business.
Collectively their Treasure Valley employment as of June 30, 2013 has increased by 146 positions since we made our investments in each. If the positions average $40,000 a year in salary, then that’s an annual impact of nearly $6 million in salary alone in our valley.
How have the investors done? It’s too soon to know as angel investments take years to mature. One of our local companies and one of our non-local companies have been acquired. One non-local company went bankrupt and we lost our investment. However, we are starting to get a picture.
Investors in the first fund have received back nearly all of their capital. Of the $1,350,000 of committed capital, the fund has returned all but about $50,000. And the fund still holds about $1 million of stock in portfolio companies at cost. Those companies will be sold over the next few years and the proceeds distributed to the investors. At this time it looks like the investors in the first fund will likely be quite happy with their returns.
So, thus far the angel funds have been good for the Treasure Valley economy, good for the entrepreneurs, and good for the investors.