A Virtuous Circle

March 25, 2010

A few weeks ago, I had the pleasure of joining a dinner conversation with Deb Parsons, co-director of Investor’s Circle (IC). The purpose of the get-together was to determine interest among a representative group of local investors in building a presence for their group (short answer:YES). I was pleasantly surprised by what I heard from the mechanical perspective. I’ve been aware of IC for a number of years through my research and efforts in the “social entrepreneurship” sector, so I had already considered them a leader in the category of socially responsible investing. What I had not be aware of is how well-run they are as an angel organization.

Like many angel groups, they have chosen to focus on a specific industry sector or theme. The Investor’s Circle theme is “socially responsible investing”, which generally means investing in companies that not only have a profit motive but which also seek to create social and/or environmental betterment. Not surprisingly, this creates some self-selection of industry sectors (no military startups or oil lease deals here, folks). Specifically, they note that their members tend to invest in:

  • Energy & Environment
  • Food & Organics
  • Education & Media
  • Health & Wellness
  • Community & International Development

They have a well-run screening and investment process that I can’t do justice to here, and present a strong bi-annual conference in Boston and San Francisco that includes not just pitch sessions, but good learning opportunities. The next event is coming up April 19-20 in San Francisco. They have also done a great job incubating new investment vehicles so investors can better diversify their portfolios.

One of the cool things they have done is prepare a multi-faceted rating on the companies from their history of investments, and have created a top-twenty list called IC20 that reflect the best outcomes on all three bottom-lines (financial, social, environmental) that they are tracking. It’s an impressive group of companies, and a great reminder that successful investing doesn’t have to come at the expense of other principles.


Solving a Non-Problem for Angel Investors

March 25, 2010

Or, in this case, creating problems that didn’t exist before… Robert Litan of the Kauffman Foundation calls out a section of a reform bill passing through the Senate Banking Committee in the Huffington Post: Proposed ‘Protections’ for Angel Investors are Unnecessary and Will Hurt America’s Job Creators. It’s a fine example of legislators being horribly disconnected from the issues on the ground. Let’s hope this dies fast.

The RAINs in the Plains…

March 1, 2010

One might not expect rural burgs like Mankato, Minnesota, Mason City, Iowa, and Fargo, North Dakota to be hotbeds of angel investing activity. Nor might one expect really good innovation around the challenges of angel investing in small groups to come from the same areas. Think again!

The RAIN Source Capital network has put together a really interesting program for small angel groups to form funds, and provides these funds with “a process for due diligence, legal templates, management support, access to deal flow and other resources.” Bravo! This is a great way to help angels organize effectively without a lot of overhead. So far they have 23 affiliated funds in six states. These also host annual get-togethers for networking and educational purposes.

One thing I like about this approach is the focus on local interests: unlike a number of the high-profile emerging angel activities which are centered only on sexy Web 2.0-ish technology plays, RAINs investors have supported medical devices, enterprise software, industrial fabricators, and a woodworking tools company. These companies may not have the stratospheric exit potentials of a SaaS developer, but they are the companies that fuel the local economies.

One concern I have (as I do with all angel funds) is the process for selecting investments. I don’t know anything about the specifics of the RAIN model, but having looked at fund structures over the past few years, there is the inevitable potential for political stalemate trying to make selections; i.e., if a majority or super-majority vote is required for a GO decision, it can stall pretty easily. I’d be interested in hearing from entrepreneurs or investors with direct experience.

On a related note, I’ve heard rumblings that one of the angel groups I really respect from the Northeast is putting together a sidecar fund. I’m convinced that groups driven by individual decision-making but supported by a sidecar fund that diversifies risk and increases upside potential for the members are going to become the norm. Among other things, the fund structure helps with long-term sustainability. More on that later.

Me and my meme

March 1, 2010

Have been bad about posting lately as life got typically randomized. Ever since my first days managing software development projects, I’ve used a favorite phrase for organizing complex processes: herding cats. I used it a lot while running an angel group – no offense to any of the felines involved. I ran across this old EDS commercial by Bob Wendt recently, and thought it was perfect.

Back soon with more relevant content.