Ohio Venture - OVA Review Newsletter
News from the Ohio Venture Association meeting on November 14, 2014

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Angel Investor Panel

Panelists:

  • John Huston, Ohio Tech Angels
  • Catherine Mott, Blue Tree Allied Angels
  • Tony Shipley, Queen City Angels
  • Clay Rankin, North Coast Angel Fund

In the last 15 years or so, angel capital has come to be seen almost as its own asset class, especially in recent years, as individual angel investors have combined to form angel networks, to syndicate risk and deepen their ability to perform proper due diligence.

Those dynamics were the topic of the November OVA event, as a panel of veteran angel investors explained the niche.

"One of the things I think the media gets wrong is they assume all angels are the same, and they are not," explained Catherine Mott, the former chairman of the Angel Capital Association, who now runs an angel group in Pittsburgh. "They come in various shapes, sizes and flavors. They can be individuals acting alone or groups. They can be unsophisticated or very sophisticated. Sometime you have family offices that are involved in creating a portfolio of early stage companies. So that too qualifies as an angel investor. Some angels want to be guardian angels—that is, they don't only want to invest their money. They want to mentor and be involved in the company. And others are very passive. 'Here's my money. Good luck and let me know how it goes.' "

Collectively, angel networks have become a powerful force, investing almost as much money as venture capital funds. In 2013, for instance, approximately 278,000 angels invested $25 billion in 71,000 companies in the U.S. That was compared with about $29 billion that VCs invested in 4,056 companies in the U.S.

Clay Rankin joked that angel investors are merely dart throwers. John Huston added: "I'll tell you what angels are in our group. They're a bunch of folks who made some money in business and are delusional in thinking they can pick winners by investing in companies that they're not gonna run."

But in a more serious vein, Rankin said angels aren't so much competitors of venture capital but complementary players. "I view angel investing as complementary to VC. Venture capital has been under tremendous pressure the last 10 years to generate better returns, so they've invested later to try to take more risk out and generate quicker returns."

Tony Shipley, of the Cincinnati group Queen City Angels, agreed. "There were a couple of defining moments in angel investing, and one of those was in 2008. Prior to that time, there were significantly more venture firms than there are today, and a lot of those venture firms were focused on early stage investments. A lot of them moved upstream, which left a void in the marketplace. So the angels had to get better at syndicating deals, because we had to backfill, and provide those multiple layers of capital, to get companies to the point that a VC could come in and carry a company forward."

He went on to explain that "the first three deals I invested in lost all the money. That was painful, but the lesson learned from that was that in order to be a successful angel investor, we needed a group, with people with diverse backgrounds. I'm an IT person, so it's very difficult to look at a life sciences deal and decide whether or not to write a check for it. So it was incumbent on us to build out the group in a way that gave us domain expertise to do our due diligence in whatever area we were going to invest in. I think that's a key ingredient in making angel groups work."

Said Catherine Mott: "We tell people when we put them through an orientation, if you don't have a ten-year time frame, then don't do this. You're going to need at minimum 10 years and a quarter of a million dollars." Added Shipley: "and make sure if you lose all the money you invest, that it won't affect your lifestyle. You have to be mentally prepared to have those kind of write-offs. We don't invest with the idea that we're going to lose, but we know that the empirical data says in all the deals we'll do, we're going to write off half of them. That's national data. So you've got to be mentally prepared for that. And if you're not, don't join an angel group."

More information:

Webcast from the Meeting:

Click on the image below to view the video.

Video Webcast from Recent Meeting
Webcasts produced by Tom Kondilas.

OVA's Video Archive is Online:

OVA is pleased to offer an archive of program videos to its website. You'll find the full video record of most OVA formal programs since 2008 at www.ohioventure.org/events/video-archives/.

Upcoming Meeting Dates:

  • February 6, 2015
    OVA Luncheon
  • March 6, 2015
    Venture Summit IX

See complete details and registration for these events.

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