Jeff Stinson

Ask the Investor, with Jeff Stinson

(Each week, Jeff Stinson, executive director of the angel-investor firm Fund for Arkansas’ Future, will answer your questions about VCs, entrepreneurs, funding and start-ups in Arkansas. Submit questions for next week’s column through Twitter, Facebook, LinkedIn or via email at jeff@arkansasfund.com. You can also leave questions in comments below.)

Q: Where do you find Angel investors in Arkansas? We have some really cool start-ups underway, most still seeking funding. Too often, we have to go out of state to find people willing to invest in pre-money stage.

– Doug, via LinkedIn

A: That’s a great question. In fact, probably the most frequent question I hear from entrepreneurs is, “Where can we find angel investors?”

I believe our fund (Fund for Arkansas’ Future) is the only organized group of angels in the state, though we hear that other groups are forming from time to time. But beyond our fund, individual angels are literally everywhere.

They range from your rich aunt who will write you a check, to former senior executives in companies that operate in your industry. Assuming you family tree is somewhat short on rich aunts, I often advise entrepreneurs to find people who are experienced in the industry in which you want to compete.

If you can find someone who, for example, has already generated wealth in your industry, then they bring the potent combination of both capital and expertise.

As for organized groups of angels, please check out the membership roster at the Angel Capital Association, which is the national trade organization for angel groups like ours. Our fund is a member, along with another 300+ groups like ours around the country. If you want to learn more about our fund, please visit www.arkansasfund.com.

Q: How do VC’s making funding decisions in Arkansas?

A: Another good question. Historically, there have been relatively few true VC investments made in the state. This is mostly due, in my opinion, to the fact that we haven’t had a sufficient number of companies ready to get VC money. Rather, the majority of companies have been at an angel (or earlier) stage of development.

Angels will invest in pre-revenue companies, but most VC firms require that the company have some operating history. Thus, the easiest way to think of the equity capital spectrum is sort of a “funnel” where you have lots of very early-stage, pre-revenue companies (suited for angel or “friends and family” capital), with fewer being developed to the point where they’re ready for VC capital, and even fewer still who go on to raise very large institutional rounds that would be led, for example, by a firm the size of Stephens Inc.

However, our state’s lack of VC-ready companies is starting to change due to a number of initiatives, including the incredible work being done by the folks at Innovate Arkansas. They work with entrepreneurs all over the state and help to prepare them to raise capital, and their efforts are already paying dividends.

As for VC firms investing in Arkansas-based companies, the Arkansas Institutional Fund has made six investments in regional VC firms and challenged them all to find investments in the State of Arkansas. You can probably do a web search on the AIF and find out the names of those six firms. But if not, e-mail me at jeff@arkansasfund.com and I’ll be glad to help if I can.

Q: Besides investments, what are the give and takes I should expect with a VC? How involved should they be in the start-up?

A: VCs, like organized angel groups, want to be involved at the strategic level of your company, but not in the day-to-day operations. They obviously want to be involved and help where they can (as that increases their prospects for investment success), but they generally have too much to do to get intimately involved in a portfolio company’s operations unless they just need to.

I’ve learned that most successful management teams actually want their investors to get involved, open doors for them, and help guide them strategically. It’s the entrepreneurs who think they already have it “all figured out” that make us the most nervous!

In essence, your relationship with your capital partner is just like every other relationship – it can be as productive or as futile as you make it out to be. As investors, we have a keen financial interest in making sure the relationship is a good one.

That’s why we place such a strong emphasis in due diligence on evaluating the management team, as in the end, we believe it’s the largest predictor of success.

(Thanks to everyone who submitted questions. Please keep them coming, and Jeff will be back next week to share more expertise and information.)

2 Responses to “Where to Find Angel Investors in Arkansas”

1. Don Rottman says:

   August 25, 2009 at 9:43 pm

   If money only grew on trees………

   From one that has what I call a “very expensive learning curve” in how to raise money….or at least working in that direction…..

   The lack of more angel investors in Arkansas poses a problem in the fact that a lot of angel investors want to be close to their investments. I had one today in Texas say that they like to have a member in the city of the company…..just their thing….and the closest was Dallas.

   There is another gap and that is in regard to the amount of funding that you are looking for. I have never seen a specific range for such. However, it is my experience that if you are in the $1+, it is expected that you are not necessarily “angel material” yet you are not necessarily venture capital material if you are in a start up mode. Then there are many firmst that don’t do deals that small.

   If you are seeking angel investors, the rich aunt may be an option….but you may find that regardless of your idea….and your relatives, you have a tougher road ahead. I found that when other options weren’t as viable….banking, VC, etc…..and have needed multiple angels to reach my need, that it was better to find a win-win scenario and create a structure to the relationship. There are some pros and cons to this.

   There are some other places, like Nashville that have a very good angel network. They even work with Vanderbilt’s MBA program and you get some extra free and motivated help. However, they too prefer to do things that are in TN vs. venture outside of the state. There are many like these, and Fund For Arkansas Future that have some local government incentives to invest in local (state) companies. This isn’t always the case, but for those of us in Arkansas, it does create more challenges than a larger metropolitan market would.

   In regard to Venture Capital firms. The very first thing is to make sure they will do deals at your specific stage of development. Get to know the characteristics of each firm. This would include the size of deal, specific industries they specialize in, and other dynamics. From experience, trying to be something other than their “norm” is when venture funds get themselves into trouble and tend to stick with what they and their principles know best.

   From a great deal of feedback, this is not an easy time to be raising capital. I learned that many venture funds are actually more like mutual funds. The people at VC firms are out raising capital just like we are. In some cases, they are competing to get the money from others to get to you at a premium. Think of them more like a mutual fund that invests in companies vs. stocks/bonds. With this, the people they raise money from (foundations, banks, and other resources) want to know what they characteristics of that fund will be. Many won’t do start-ups period because of the statistically higher risk. This economy have done two other things: 1. because of the stock market in the last couple of years, sources have less money to put into venture capital funds to be invested. 2. Venture Capital firms that have cash on hand may/do have companies in their portfolios that are economy distressed and are going to need some of those funds themselves, again, keeping them from investing in new ventures.

   Because of the above dynamics, I have been told that the cost of those funds are much higher. Also, if you are in a start-up situation, you are competing against established companies that are “distressed” because of the economy and VC firms can buy into these more proven viable companies at a discount with less comparative risk.

   There are two other dynamics to share with you. One is that if you think venture capital = entrepreneurial……ok…I had to stop and regain my composure from laughing…… that went away in the dot com world. Unless you find some exceptions out there, my experience is that venture capital, even angel funds, are about as institutional as banks are today. Banks, even when given the SBA backing, want you to be able to collateralize a loan as if the SBA isn’t there. This obviously counter intuitive to the purpose of the SBA backing.

   Note though, the SBA for the 7a loans has increased their guarantee from 75% to 90% and are waiving the typical fees that have been there as a pass through in the past.

   Hope that you have a “typical or traditional business model. Based on that lack of entrepreneurialism, you will find that if you have something that requires “depth” of understanding to “get it”, you may find that you have to create an industry education and a value proposition very quickly. Because of the number of things put in front of capital options, they make value judgments quickly and very much along the lines of statistical norms.

   Far from comprehensive, sorry for the fragments, but I hope from someone also raising $, that you find some of this helpful. I wish someone could/would have given me a better lay of the landscape earlier. Stay with it though. How resourceful you are, how persistent you are is also a good measure of whether you have some of the core competencies to be embarking on this journey.
2. Where To Find Angel Investors in Arkansas | Innovate Arkansas says:

   September 19, 2009 at 3:57 pm

   [...] Ask the Investor , with Jeff Stinson (Each week, Jeff Stinson, executive director of the angel- investor firm Fund for Arkansas’ Future, will answer your.Page 2 [...]

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