Saturday, November 1, 2014

A Primer on Accredited Investor Status

The definition of an accredited investor is of paramount importance to angel investing.  The Securities and Exchange Committee has been considering changes to the definition.  The problem is if the SEC makes the requirements more stringent, they will reduce the amount of capital available to early stage companies. 

Here’s a brief primer and explanation of why this is so important.

During the midst of the great depression, Congress passed the Securities Act of 1933.  This act set for the basic framework governing securities sales.  Under this law, all companies selling securities must register them with the Securities and Exchange Commission, unless an offering qualifies for an exemption.  Registration is a long and expensive process and simply not feasible for most early stage companies.  Therefore, most sell their securities under one of the available exemptions.

One such exemption is the private offering.  The 1933 Act provided an exemption for transactions “not involving any public offering.” However the act didn’t define what was a private offering. In 1953 the Supreme Court ruled “An offering to those who are shown to be able to fend for themselves is a transaction ‘not involving any public offering.’”

So who is able to fend for themselves?  The SEC adopted Rule 506 of Regulation D, which allows for sales to “accredited investors” that do not involve “general solicitation.”  The assumption is that if an investor has sufficient wealth, he or she does not need the protections afforded by registration with the SEC. 

The SEC defines an accredited investor under Rule 501.  A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person” or “a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.”

In 2010 the Dodd-Frank Act in 2010 required the SEC to periodically review its definition of an accredited investor.  It has not yet done so, but has asked its Investor Advisory Committee to make recommendations. Over the past six months there has been much discussion as to whether the definition should be revised.  One of the proposals was to index definition to inflation, the result of which would be to decrease the pool of eligible accredited investors from about 50%. 

My own view is that this is a solution in search of a problem to solve. And I believe we need more angel capital, not less.  I support the Angel Capital Association view that the definition should focus on financial sophistication of the investor, not an arbitrary net worth level. 

Happily, on October 9, 2014 the Investor Advisory Committee to the SEC recommended that the SEC consider adopting rules that would enable individuals to qualify as accredited investors based upon their financial sophistication, but did not recommend changing the net worth level at this time.
The above was originally published in the October 22, 2014 issue of the Business Insider, the business magazine of the Idaho Statesman

Saturday, August 23, 2014

Boise Angel Alliance Seeks New Members

Published in the Idaho Statesman Business Insider, August 20, 2014

The Boise Angel Alliance ( is ten years old.  It was formed under the leadership of Mary Andrews, who at the time was working with the Idaho Department of Commerce after positions in private equity and venture capital.  Mary had a vision that local people could come together to provide capital to local entrepreneurs. She is now the Director of Economic Development for Boise State, and was just elected president of the Boise Angel Alliance for the second time after an eight-year hiatus.

Today more than 100 individuals belong to the Alliance; nineteen local companies have received more than $2 million in equity capital, and those companies employee more than 400 people in the Treasure Valley. 

Angels invest first of all to help the local economy, but returns are important also.  Here the record is not complete.  We ultimately have to sell our investments to know our returns.  We continue to hold positions in seventeen of the nineteen companies.  One was sold for a substantial profit; one went bankrupt and we lost our entire investment.  It will be another five years or so before we can really begin to assess our investment returns.

We know this, however.  Entrepreneurs continue to need capital.  Members of the Alliance just finished raising capital for our third angel fund.  Known as the Capitol City Angel Fund, it now has approximately $1 million of fresh capital available to invest in local start-ups. 

Our process is thorough and takes time.  We are appropriate for only a small portion of startups in the Treasure Valley.  Information our criteria and application process is on the Alliance web site under the tab Entrepreneur. 

Most successful applicants will work with one of the many service providers in the valley to prepare their applications and their pitches.  We recently provided training to local resource providers in our process and criteria.  A list of trained resource providers is listed under the tab Resources.  We strongly recommend entrepreneurs seeking capital from us consult with one or more of these trained service providers. 

In addition to making capital available to the entrepreneurial community, the Alliance works to enable local individuals who have the financial capacity to invest to do so using best practices.  We generally meet monthly to listen to investment pitches.  We have three standing committees that do initial deal screening, consider follow-on investments in companies where we have already made an investment, and to review deals proposed by other angel groups in the northwest.  When we are considering an investment, we form a due diligence team to look into the entrepreneur and the company, and to report back to the entire group.

The Alliance invites people interested in learning angel investment practices to apply to join us.  The Membership fee is $500 per year.  Members are invited to attend all general and committee meetings, and to participate in our education program. 

Information on membership is available from the web site under the tab Investors.

Seek Help from Boise Service Providers before Applying to the Boise Angel Alliance

The Boise Angel Alliance (BAA) is ten years old.  During those years the BAA formed three angel funds with total capital of nearly $4 million.  To date, these funds have invested $2.1 million in the stock of nineteen Treasure Valley companies.  As of June 30,  these companies have created more than 300 jobs since we invested in them.

During this ten-year period we have been active in mentoring local entrepreneurs prior to their applying for funding with us.  But, under the leadership of our new president, Mary Andrews, we have recently announced a shift in our strategy.  We will no longer mentor entrepreneurs before they apply to us.  Here’s why.

1.  The Treasure Valley has lots of support for entrepreneurs.  There are many entrepreneurial service providers available to help entrepreneurs including SCORE, the Idaho Small Business Development Center, the Women’s’ Business Center, Zion’s Bank Business Center, the Tech Connect, Startup Grind, and Activate Boise.  We don’t need to offer mentoring services any longer because there are others focused on providing this service.

2. Our mission is to help angels.  We know there are lots of people in the valley who have the financial capability to make investments in early-stage private companies.  But most don’t do so.  We want to help these people learn how to make these types of investments using current best practices. We do this by organizing angel funds and through our education program.   To the extent we spend our time mentoring entrepreneurs, we have less time to help our existing and prospective angels.

3. Mentoring by investors can be problematic.  Sometimes our angels work with pre-funding entrepreneurs, only to later turn them down when they apply for funding.  Naturally this can confuse the entrepreneurs and not infrequently causes anger. 

The BAA is modifying its business processes to match this change in strategy.  Here’s how the new model will work.

1.  Train those organizations that support entrepreneurs.  On July 31 we are holding a training session for service providers that are interested in assisting entrepreneurs who may seek funding from local angels including our funds.  If you are a service provider and would like to attend, please let the BAA know by sending an email to

2. Refer entrepreneurs to the service providers.  Our web site will be changed to encourage potential applicants to first seek the counsel of one of the local service providers.  Of course, entrepreneurs may apply directly to us without seeking such counsel, but our experience is many who do so file not well thought-through applications and rarely receive funding.

3. Encourage service providers to serve as an advocate for the entrepreneurs.  If a service provider is working with an applicant for funding, the service provider will be invited to attend our screening meetings with the entrepreneur.  In this manner, the service provider will serve as another set of eyes and ears for the entrepreneur as we engage with them.

Interested service providers and entrepreneurs can learn more about the process from our web site:

Disclosure: I am past-president of the Boise Angel Alliance, a principle in Loon Creek Capital that provides administrative services to the Boise Angel Alliance and its funds, and am an investor in all three angel funds.

Mainstreet Businesses -- Kelli Soll and Global Service Partnerships

I have been remiss in keeping my blog up to date. This blog re-posts articles I write for the Business Insider at the Idaho Statesman.

Here's the May, 2014 article about Venture College entrepreneur Kelli Soll, and her business Global Service Partnerships

Not everyone wants to start and build a business with investors, high growth and an exit. Some prefer to simply work for themselves.  We call these businesses Main Street or Lifestyle businesses.  Lean startup principles apply to starting a Main Street business as well as to scalable businesses attractive to angel investors.
Venture College entrepreneur Kelli Soll, a partner in Global Service Partnerships (GSP) is an example of the application of lean startup principles to a Main Street business. Kelli and her partner had a vision that they could somehow create a business in Idaho that would deliver value to people here and at the same time attack a literacy problem in Belize.  They wanted to create a profit making social venture that would enable them to earn a living while impacting this social problem in Belize.  How do you do that?
They began by proposing service learning trips to high school students.  Kelli interviewed 90 high school students and educators.  She learned they would love to go to Belize, but there was a problem.  High school students don’t have the money to go. So she had to pivot.  That is she had to find a customer for whom such a trip would provide value and who could and would pay.
She spent 50 hours talking with parents. She learned they might be willing to pay to send their children to Belize, but only if she could assure the parents their children would be safe.  Pivot number two.  She needed to redefine her relationship with her customers. This wasn’t just a commercial transaction; she needed to develop a very personal relationship with her customers to gain their confidence.
Armed with this information, Kelli developed a “minimum viable product” or an MVP.  An MVP has just enough features to see if the customer will in fact pay.  She spent $20 to print brochures.  Note, this was her first cash investment.  She invited those she had previously interviewed to meetings where she gave them her flyer that said she would be taking people to Belize in March 2014 and the fee would be $3000.  Fifteen grandparents, parents, senior citizens and four teenagers signed up to go.  Wow! That was $45,000 of presold revenue.  Kelli’s total investment to date, other than her time, had been $20.
Based upon this assurance that she had paying customers, Kelli then (and only then) went to Belize to set up the partners and activities such a trip requires.  The end of the story is the trip happened, Belizean children’s lives were changed, and fifteen Americans had an amazing experience.  Kelli has now presold two more trips.  That will result in a total of $135,000 of revenue in her six months of operations.  You can learn more about GSP at
The lesson is that she did not first make a significant investment and build a product.  She talked with potential customers and kept talking and changing her plan until she nailed down the customer segment, the value she would create, and a revenue stream.  Only then did she begin spending money on her product—the opposite of most entrepreneurs. 

Update on Boise Angel Alliance

I have been remiss in keeping my blog up to date. This blog re-posts articles I write for the Business Insider at the Idaho Statesman.

Here's the March, 2014 article titled update on Boise Angel Alliance:

Update on Boise Angel Alliance Investments
The Boise Angel Alliance ( is ten years old.  Mary Andrews, who at the time was with the Idaho Department of Commerce, Phil Reed of Highway 12, Steve Simpson, retired CEO of Extended Systems, and Phil Bradley, who was CFO of ProClarity, thought the time was right to organize those in the valley who were in a position to invest in early stage ventures.
The Alliance has two purposes.  One is to enable local people who can afford to invest in early stage companies to do so using best practices. As new investors join, those who have experience share what they have learned.  Some of our members attend regional and national angel meetings, bringing back practices from money center angels.   The second purpose is to make capital available to our entrepreneurs.
In the early years only a handful of investors showed up at the meetings, and frankly not much money got invested.  But thanks to the vision of the founders, today more than 100 investors are actively engaged with the Alliance. 
Here’s what has been accomplished (data are for April, 2007 through December, 2013).
Total invested in the Treasure Valley:   $1.7 million
Number of Treasure Valley companies funded: 15
Jobs created since investment: 220
We also invested about $250,000 outside the Treasure Valley along side other angel groups in five deals.
It’s a lot of work to invest thoughtfully.  In the seven years we have actively been accepting applications, we have reviewed 363 investment inquiries.  Of these 85 received serious consideration.  Of those receiving consideration, we invested in about 25% of them.
The number of angel appropriate deals in the Treasure Valley is increasing.  We invested $650,000 in 2013 in five deals or about 30% of our investments in the last seven years were made in 2013. We’ve already closed one investment in 2014.
Here are the companies in which we have invested:
Treasure Valley companies:
Core Concepts
DB3 Mobile – Meal Ticket
Fit Wrapz
Gogo Labs
Health Fundr (2014 investment)
IdeaRoom Technology
Loan Tek
Nurture - Happy Family (sold 2013)
Prosperity Organic Foods
Social Good Network

I am happy to report that every one of the above companies is still in business. 

We obviously don’t make many investments.  Our processes and expectations are stringent.  However, we hope that all companies that come in touch with the Alliance gain value, regardless of whether or not we invest.  We have a mentoring committee that advises companies regarding their strategies.  We have partnered with the Idaho Small Business Development Center and the BSU TECenter to coach entrepreneurs seeking funding on their pitches.  Our committees try to give feedback whenever they meet with an entrepreneur. 
If you are an accredited investor interested in participating with us, or an entrepreneur seeking funding, additional information is available the web site. 

Saturday, March 1, 2014

Med Man manages medical clinics so doctors can focus on patients

I am privileged to serve on the board of and be an investor in Medical Management, Inc., known as MedMan ( In light of the theme of this issue of the Business Insider, I thought it might be interesting to the readers if I were to discuss this company.

MedMan is a medical group management company. What that means is that physicians and hospitals outsource the management of their clinics to us. The providers take care of the medicine; we take care of the everything else.  Administrators of the clinics are our employees.  All the non-medical staff in a clinic work under the direction of our administrator, who in turn reports to the physician or hospital owners.

We manage 25 clinics throughout the NW including Idaho, Washington, Wyoming, Oregon and Alaska.  About half are physician-owned clinics and half are hospital-owned clinics. Collectively the clinics we manage take care of about one million patients. We believe we are the largest medical clinic management company in the Pacific Northwest.

Why would clinic owners want to outsource their management?  Because they are experts at the practice of health care; we’re experts at managing medical clinics.   We also provide strategic planning and other consulting services for medical clinics, and interim clinic management for those between administrators.

As America’s first medical group management company, we bring more than 35 years of experience to our clients.  And we bring the collective wisdom of our administrators to each.  The administrators meet together virtually each week to discuss and solve problems and twice a year they gather at MedMan University to be updated on the current trends in clinic administration.

These are interesting times to be in the business of health care management.  Our clinics are working to embrace the concepts in the Affordable Care Act including the notions of medical homes and accountable care organizations, two of the important mandates in the act.  But while we as a society are reinventing the delivery of health care, patients must continue to be served.

We believe at all times, but especially in times of turbulence and change, a successful business must be grounded in a strong and enduring philosophy.  Otherwise it is easy to lose your way as the environment constantly changes.

We are values and purpose driven.  This has allowed us to continue to grow our business in spite of the tremendous uncertainty in the health care environment.

Our purpose is to “create access through clinics that work.” By that we mean that efficient and effective health care providers best serve patients.  Our company is employee owned with virtually every employee (and all board members) having a stake in the success of the company.  Every one of our employees shares our values of integrity, respect, loyalty and information sharing.
These are extremely challenging times for health care providers.  I am honored and proud to be associated with a values-driven company that continues to do the important but unglamorous work of providing access to health care.

Dr. Kevin Learned is the director of the Venture College at Boise State University and a member of the board of directors of the Boise Angel Alliance.  This blog post was originally published in Business Insider, a business magazine of the Idaho Statesman on February 19, 2014.

Sunday, February 9, 2014

If not a business plan, then what?

I have been discussing the Lean Startup movement in my recent columns. The movement says that business ideas are based in testable assumptions, and that the first task of the entrepreneur is to test and refine the assumptions; NOT to write a business plan.  This is somewhat heretical as for the last fifty years we thought that the business plan was the first step on the journey to launching a business.
So, how might we organize these assumptions and test them if we are going to do this rather than craft a business plan?  Alexander Osterwalder and Yves Pigneur suggest an answer in their book Business Model Generation.  According to them, “a business model describes…how an organization creates, delivers, and captures value [emphasis mine].”
Their research revealed nine building blocks to describe the business model (definitions are quoted from the book):
1.  Customer Segments. The different groups of people or organizations an enterprise aims to reach and serve.
2.  Value Proposition. The bundle of products and services that create value for specific Customer Segments. 
3. Channels. How a company communicates with and reaches its Customer Segments to deliver a Value Proposition.
4. Customer Relationships. The type of relationships a company establishes with specific Customer Segments.
5. Revenue Streams. The cash a company generates from each Customer Segment.
6. Key Resources.  The most important assets required to make the business model work.
7. Key Activities. The most important things a company must do to make its business model work.
8. Key Partners. The network of suppliers and partners that make the business model work.
9. Cost Structure. Describes all the costs incurred to operate the business model. 
Osterwalder and Pigneur combine these nine building blocks into what they call the Business Model Canvas.  They put the canvas in the public domain.  You can download it at
The directors and entrepreneurs at Venture College have found this model incredibly helpful as a way to organize our thinking about a particular venture.  Over a period of several months the entrepreneurs tackle each building block by writing down their assumptions, and then testing those assumptions, primarily by interviewing prospective customers. 
To date, our entrepreneurs in the first cohort of Venture College have generated 480 assumptions about their business models.  They have conducted 121 customer interviews and rejected more than half of their assumptions as invalid. 
For example, one of our entrepreneurs believed that there would be a profitable market for an insectarium in Boise.  In the language of the Business Model Canvas, she believed there existed Customer Segments that would Value a visit to an insectarium sufficiently to allow her to make a profit.  What she learned through talking with prospective customers in the various segments is lots of people thought it was a cool idea, but very few were willing to pay the entrance fee (Revenue Stream) such that revenues would be higher than costs (Cost Structure). 
Rather than write a lengthy business plan discussing all the segments, she was able to quickly talk with enough possible segments to learn her idea wouldn’t work.  And, finding this out before she raised the million dollars it would take to create such a facility saved her from huge losses. 
The Screening Committee chair for the Boise Angel Alliance is considering modifying the application process to ask the entrepreneurs to use the Business Model Canvas as a way of applying for funding.  The angels know there are no sure things in startups.  But if an entrepreneur could lay out his or her assumptions and then present the evidence he or she has accumulated to validate those assumptions, it might help the angels improve their investment decision making.
Take a look at the Business Model Canvas as an alternative to writing an exhaustive (and likely very wrong) business plan. Search online for “Business Model Canvas” and you’ll find a great deal of information about this new way of planning for startups.
Kevin Learned is the Director of Venture College at Boise State University ( and a member of the Board of Directors of the Boise Angel Alliance (

Sunday, January 5, 2014

Test your business model with a minimum viable product

Stanford Professor Steve Blank says “a startup is a temporary organization in search of a repeatable, scalable, profitable business model” ( You may recall from my last column that he believes an initial business plan is a series of unproven assumptions, and that the entrepreneur’s initial task is to test those assumptions quickly and cheaply.

He sees this happening in two stages:  (1) customer interviews and (2) bringing minimum viable products to the market place.  Both are designed to gain feedback from those who might purchase the product or service. 

In the first stage the entrepreneur interviews people who may be able to give feedback on the assumptions such as potential customers, suppliers, and channel partners.  As data is collected from the interviews, the assumptions are refined until the entrepreneur believes she has validated all the assumptions in the business model.

In the second stage the entrepreneur further tests the business model by offering the market place an actual product or service, but the minimum (the “minimum viable product”) necessary to find out if the market will pay for the product and how the customers will use it.  In other words, it is a mistake to try to bring a full-featured product to the market before learning what features the market values.  And the best way to learn this is to bring out a modest model.

Steve Jobs was a master at this.  Think back to the first iPod, iPhone, or iPad and the iterations since they were released.  These early versions had just enough features to learn if the market were interested. Then Apple could watch how the products were used, and modify them accordingly.

We use this approach at Venture College.  For all fall the student-entrepreneurs have been out interviewing prospective customers.  As they gained insight from potential customers they modified their assumptions about their business model—in some cases radically.

Several of the entrepreneurs in our first cohort are beginning to bring modest products or services to the market, still in a test mode.  For example, one of our entrepreneurs has a passion for teaching financial responsibility to teenagers. Through her interviews she learned that teenagers want to know how to afford to move out of home when they are ready to go to college.  But teenagers don’t have the funds to pay for such knowledge. 

Further interviews with the parents of teenagers, led her to the insight the parents are also interested in how their children can successfully move out of home when the time is right, and at least some parents are willing to pay for this information.

So now she is creating her service, a seminar to teach financial responsibility to teenagers.  Initially she is producing a low-cost brochure that sets forth the content of her seminar. The brochure is the minimum viable product. She will use the brochure to try to obtain paying customers for her seminar.  Should sufficient customers sign up, she will then proceed to develop the seminar itself.

In the local angel community there is wide acceptance of the notion that an early stage company is an experiment in search of a repeatable, scalable and profitable business model.  The local angels often fund companies just as they are ready to bring the initial version of their product or service (the minimum viable product) to the market. 

This allows us to invest modest amounts and give the company an opportunity to refine its business model.  Once the business model is proven, the risk is reduced and it is generally easier for the company to then raise substantial capital to execute its business model.

Learned is the past-president of the Boise Angel Alliance and the Director of Venture College at Boise State. This column was originally published in the Idaho Statesman's Business Insider on December 17, 2013. Learned writes monthly on angel investing and startups for the Business Insider.  Columns are subsequently published in this blog. You can reach him through