There is a gap in the early life of a startup where everything is risky.
This is when money becomes simultaneously the most important ingredient, and the most difficult to get. Friends and family already gave you their money. Banks often aren’t willing to take a bet. State funds are skeptical. Sometimes, it seems, it takes a miracle.
Enter the angels. They are the seasoned businessmen, bankers, doctors, realtors, engineers, and others – each willing to invest money into startups, in exchange for some involvement with the company and generous tax credits.
Greg Syrup is a University of North Dakota grad who now works for the Center of Innovation, and has been involved with angel funds for a number of years. Time and time again, he has seen the role angels play in the growth of a startup.
“Angel investors can help take them over that cliff, and get things rolling,” he said. “Angel investors can leverage the value of their network and resources, to help them succeed.”
What do angels want?
The angel fund is a committee where these wealthy people gather together and take a look at startups in their area and beyond. Sometimes there is a focus to their gaze: biomedical technology, Internet of Things, drones, etc. In North Dakota, a hot topic is agriculture technology, Syrup said.
“Biotech is big. We need to change the way that we farm,” Syrup said. “Agriculture is continuing to grow. It’s the only thing that can continue for the length of mankind.”
Above all that however, many investors express that their main focus is the entrepreneur behind the project. At the Tech.Co conference, which gathered top investors from around the country, they asked them what they look for in an entrepreneur. Humility emerged as the most desired quality in an entrepreneur (founders, take note!). Howard Dahl, a successful entrepreneur who recently spoke at 1 Million Cups Fargo, echoed the sentiment saying that he gives money to people he likes. A little trust, he said, can go a long way.
In exchange for these investments, these angels often become mentors for the companies. In the state of North Dakota, they also receive a 45% tax credit, and in Minnesota a 25% tax credit for angel investments. This is a huge appeal to investors, Syrup said.
Where are the angels of ND?
Despite that, angel investing activity is low in North Dakota. It got off to a slow start in the early 2000s, hit a peak around 2012-2014, and has since slowed back down.
At its peak, angel funds like the Linn Grove angel fund raised around $2.2 million and North Dakota Capital Ventures raised around $4.4 million to invest in North Dakota startups (with a few out of state). Syrup said on average angel funds in Fargo and Grand Forks have 50-100 investors and raise an average of $1-3 million.
Now however, the only active firm with venture capital investments is Arthur Ventures in Fargo (and that’s not even an angel fund, it’s a venture capital firm). Syrup, however, said that an increase in angel investing is on the horizon.
“Over the last year things have sophisticated and formalized a lot more. It’s nice to see things address and advance,” he said. “This new generation of angel funds is poised to do something a bit better. We’re exposed to new networks, we’re walking in the circles that we should have been when things got going.”
The increase in angel fund activity will come as startup activity increases as well, Syrup said. In the early days, it was a struggle to find North Dakota companies to invest in, he said.
“You don’t see too many companies but you’re seeing more as of late,” he said, citing UND and NDSU as pipelines for future startup creation. “I love that it’s changing. I think it will only continue to grow.”
Photo courtesy of the Center for Innovation.