Tag: Angel investing

Chris Burney with the San Antonio Angel Network Discusses Angel Investing on Ideas to Invoices

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Chris Burney, Executive Director of the San Antonio Angel Network, courtesy photo.

San Antonio has always had angel investors but it hasn’t had a formal network for a while, but a year ago that changed with the formation of the San Antonio Angel Network.

“A group of local investors, visionaries, entrepreneurs got together and hatched the idea that San Antonio really needed an angel network to help with all the growth we are experiencing in our startup ecosystem and beyond,” said Chris Burney, executive director of the San Antonio Angel Network.

Previously, Burney worked as a manager and senior financial analyst for Rackspace, the San Antonio-based Web hosting company.

As the head of the San Antonio Angel Network, Burney evaluates deals, recruits new members and runs the organization, which is based in the RealCo Seed Fund Program offices at Geekdom in downtown San Antonio.

On this episode of Ideas to Invoices, Burney discusses angel investing in San Antonio and the details of the deals the San Antonio Angel Network looks for when evaluating a startup.

The San Antonio Angel Network’s 75 members consist of accredited investors or wealthy individuals, ranging from large family offices, successful entrepreneurs, business owners, doctors, accountants, and lawyers.

“The diversity of our network is one of its strengths,” Burney said.

The San Antonio Angel Network, a nonprofit organization, is still accepting members but plans to cap membership at 100. Individual members pay $1,800 and corporate members pay $2,500 a year.

“Those dues just really help us be sustainable,” he said.

The San Antonio Angel Network uses a pooled investment vehicle that allows angels to invest a smaller amount in lots of deals, Burney said. That allows them to write checks in a startup for as low as $5,000, he said.

“Angel deals are inherently risky even with the best due diligence and best entrepreneurs,” he said. “We expect a high rate of failure. But we also expect a high rate of return for our investors.”

Every six to eight weeks, the San Antonio Angel Network hosts pitch events with two or three startups pitching to investors. Entrepreneurs can apply directly on the San Antonio Angel Network website. It reviews applications on a rolling basis and it doesn’t require a fee to apply, Burnet said.

“We have no geographic limitations on the companies we will fund, or invest in,” Burnet said.

The San Antonio Angel Network has invested in three San Antonio startups and one in Austin so far. Its first deal was in HelpSocial, a social media software systems startup spun out of Rackspace and founded by Matt Wilbanks. The second investment was in Parlevel Systems, which is inventing new vending machine technology, and the third one was Dauber, a dump truck logistics, and technology company. And its Austin investment is Localeur, based in Austin, which is an app that provides recommendations from locals headed up by Joah Spearman.

“Almost every major city with a thriving startup ecosystem in the state has an angel network helping support the entrepreneurs,” Burney said. “San Antonio did not have that until we came around. We know for a fact that we were missing deals and that companies were either not getting funding or moving elsewhere because of the lack of investment resources here.”

The San Antonio Angel Network is part of the Alliance of Texas Angel Networks, comprised of 13 angel groups across Texas. Last May at the Hotel Emma at the Pearl, the San Antonio Angel Network hosted the annual summit of the Alliance of Texas Angel Networks with more than 100 investors from all the groups to discuss best practices and angel investing across the state.

The San Antonio Angel Network tries to be a very friendly entrepreneurial network, Burney said. It tries to get the application and due diligence process down to weeks, instead of months and to get the entrepreneurs that meet its criteria in front of its investors as quickly as possible, he said.

The San Antonio Angel Network will look at any deal with a scalable business model that will provide a good return to its investors, Burney said.

For more on the San Antonio Angel Network, listen to the entire podcast and please subscribe, rate and review Ideas to Invoices on iTunes. And support the podcast on Patreon for exclusive content only available to subscribers.

Tips for Startups on Raising Old Money and Crowdfunding

Photo of Stephanie Chandler, partner of Jackson-Walker, courtesy of the law firm.

Photo of Stephanie Chandler, partner of Jackson-Walker, courtesy of the law firm.

Old real estate and oil money in town invested in San Antonio’s Rackspace early on, said Stephanie Chandler, partner with Jackson-Walker.

It was one of the first cases of old San Antonio money backing a startup technology venture here, she said.

Now with Geekdom, a technology incubator and accelerator in downtown San Antonio, the goal is to get even more local investment into startups, Chandler said.

“Over the last ten years there’s a much more significant uptick in what families are doing,” in investing in startup deals, she said. “Five years ago, we didn’t have the Rackspace founders looking at deals.”

Five years ago, the Center for Innovation and Technology Entrepreneurship at the University of Texas at San Antonio didn’t have its bootcamps in which it introduced mentors to support young startups, she said.

Historically, a lot of the family offices in San Antonio didn’t want to look at startup investments, Chandler said. But that’s changed.

“There is a lot of buzz going on at the San Antonio country club about what’s going on in town and trends,” she said.

Chandler spoke last week at Jackson Walker’s law offices in downtown San Antonio on “Raising Capital from New Money and Old Money: Crowdfunding and Family Offices in 2014.”

Mike Laussade of Jackson-Walker also gave a presentation to about 50 entrepreneurs in attendance.

“Most startups don’t attract money from lenders,” she said.

Angel investors generally put anywhere from $25,000 to $250,000 into a deal, Chandler said.

“Clearly they are motivated by getting a return, but they are also looking for something else,” she said.

For example, a lot of the successful entrepreneurs and executives with Rackspace are now investing in early-stage tech startups to give back to the community, Chandler said.

When startups raise money, it’s important that they adhere to federal regulations.

“Every single stock offering is required to be registered with the SEC,” she said.
That requires startups to provide audited financial statements and other expenses. But if you’re not doing a public offerings, there are exemptions to these rules.

“If a deal is truly private, you don’t have to register it,” she said.

The Securities and Exchange Commission’s Rule 506 provides an exemption to companies that allows them to raise an unlimited amount of money from accredited investors, Chandler said.

An accredited investor is someone who has net assets of more than $1 million not counting their house and income of $200,000 per year, Laussade said.

The Jobs Act allows for crowdfunding that allows companies to raise small amounts of money from large numbers of non-accredited investors, but it is not yet effective, Laussade said. The rules are still being worked out and might be adopted later this year, he said.

As of Sept. 23, the SEC adopted a New Rule 506( c ) that permits companies to solicit or advertise offerings as long as all the purchasers of the securities are accredited investors.

When dealing with old money, especially from the oil industry, in San Antonio some investors will not do a deal if it involves a 506-c solicitation which requires disclosure of investors, Chandler said.

“They are choices all along the path,” she said.

Once you go 506 ( c ), you can’t turn back, Laussade said.

Equity-based crowdfunding can only be done on a registered crowdfunding portal. And companies can only raise up to $1 million a year, Laussade said.

Securities law does not apply to Kickstarter and IndieGoGo because they are perk-based crowdfunding. The people donating money on those sites to projects are not investing in the company or getting any equity in exchange for their pledges.

To do equity-based crowdfunding from non-accredited investors, companies have to file a form C and provide audited financial statements. Those can cost $50,000, Chandler said. Companies also have to provide full disclosures on what they are doing.

“If you want to go stealth on your product, how are you going to do that?” Chandler said.

Annual reports are required. These are all things that are not required with a private offering, Laussade said.

“It’s going to be an onerous process,” he said. “And the rules aren’t yet final.”
The summer would be the absolute earliest the new equity-based crowdfunding rules will be effective, Laussade said.

Hurt+Harbach Shuts Down

hh-social-media-transparentLast month, a new seed-stage venture capital firm, Hurt+Harbach launched.
This month, it shut down.
Brett Hurt, co-founder of Bazaarvoice and formerly with Austin Ventures, and Jeff Harbach, former executive director of the Central Texas Angel Network, formed the firm aimed at launching more tech companies in Austin. Harbach and Hurt made the announcement to end their firm in separate blog posts.
“Today we’re announcing that Hurt+Harbach is no longer,” Harbach wrote on his blog. “It’s a bittersweet ending. A week ago Brett decided that his hopes and dreams ultimately lie elsewhere, and we agreed that ripping the band-aid off in quick order was best.”
“I’m writing to tell you that I’ve decided not to continue to pursue Hurt+Harbach,” Harbach wrote on his blog. He then wrote that the decision had nothing to do with his partner, Jeff, and that they were “very successful on the fundraising trail.”
“We were approaching our first close with prospective investors but we never actually sent out the final legal paperwork or took any investor capital in,” Hurt wrote. “Facing the prospect of a 10-year fund cycle, with investors counting on me for longer than that (a successful VC will set up multiple 10-year lifecycle funds over the years), made me think more deeply than ever if this is what I was really passionate about doing for the next 10-20 years of my life.”

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