by: Andrew Warfield Lee-Collier EditorAmid the gloom and doom of the post 9-11 economic downtown, some angels in Southwest Florida rose to the occasion.
Angel investors, that is.
In 2004, about a year after Timothy Cartwright moved to Naples to work with an investment bank based in Chicago, he founded the Angel Investment Network — now called the Tamiami Florida Angel Funds. The goal? Recruit high-wealth investors to fund early stage companies primarily in the emerging technology space.
Today, nearing its 15-year anniversary, Tamiami Angel Funds has some $12.7 million invested in 20 companies across three fund groups of about 40 members each, the diverse group of active and retired executives, entrepreneurs and business owners providing financial and intellectual capital to help young companies succeed. Of those 20 companies, three have exited the fund and one filed for dissolution.
“This was never done here before,” says Cartwright, chairman of Tamiami Angel Fund. “And at the time everyone was licking their wounds. I ended up talking to 600 high-wealth individuals and found 49 to put up $2 million of capital.”
And Tamiami Angel Funds was born, with the dual purpose of supplying high-wealth individuals the advantages of an accomplished, multi-disciplinary group of successful investors, and young companies ready to grow with much-needed financial and intellectual capital.
Guiding a room full of hard-charging, type A personalities accustomed to succeeding by having things their way does present challenges — though meetings and discussions are largely collegial at the general membership level. That is accomplished, Cartwright says, by combining a democratic process among the membership’s monthly meetings, with intensive committee work.
“It’s highly risky, so getting a group of 40 high-net worth types of individuals who have always been used to buying right and getting their way to cooperatively work together and decide to invest in a format where nine of 10 times they will be wrong is extremely difficult,” says Cartwright, also a partner with Fifth Avenue Advisors, a Napes investment firm. “There are situations where there are strong opinion and people can see things differently.”
The refined, multi-step process of picking companies appears smooth now. But it hasn’t always been that way.
One example is the genesis of a procedural change from Fund 1, which like Fund 2 is now fully deployed. At the time, final approval required unanimous agreement by the executive committee, which on at least one occasion left the decision on behalf of the entire group in the hands of one member. That has since been modified.
Fund members will evaluate as many as 450 proposals per year and invest in four to eight of them. Successful candidates must carry marketplace validation, which can include one or more of letters of intent, purchase orders, subscriptions, download data, crowdfunding campaigns and, most importantly, the promise of revenue.
The companies must also have solid management teams.
“In real estate, the adage is ‘location, location, location,’” he says. “The adage in early stage investment is ‘management team, management team, management team.’ It is a highly scrutinized component in all our deals that we consider what we call the execution team, taking the emphasis off managing something and orient them toward execution.”
Despite the scrutiny, not all investments are successful. To underscore lessons learned from risk, Cartwright, for example, says Tamiami Angel Funds now shies away from restaurants.
“One of the investments that we ended up losing more money on than we returned was a restaurant concept,” he says. “While we will invest in food and beverage companies, it would be very difficult to get our group to ever invest in a single restaurant or a chain of restaurants after our first foray into that.”
Exit strategiesInvestments, in general, are made with an eye toward a seven-year horizon. Cartwright says the average return on a successful investment by angel funds nationwide is about 22%.
In 2017, there was an exit in Fund 3 by Durham, N.C.-based iScribes, when the electronic medical documentation company founded in 2014 was acquired by Nuance Corp. for a non-disclosed amount. The deal yielded a 32% return to Tamiami Angel Funds, which invested $265,000.
ConnexPay, co-headquartered in Naples and Minneapolis, could be among the next success stories. The financial technology company secured $355,000 from Tamiami Angel Funds to complete development of its technology. Co-founder and chief operating officer Jacob Eisen says the firm's program streamlines the process between virtual payments and recipients while providing real-time data of the difference between customer transactions and outgoing payments to end providers, among other functions.
Eisen, 35, of Naples, and CEO Robert Kaufman, 40, of Minneapolis, have backgrounds in virtual payment and investment banking. Eisen says he and Kaufman could have secured growth capital elsewhere, but they chose to pitch Tamiami Angel Funds in large part for the ancillary benefits it offers.
“We had a lot of places we could have gotten funding, so raising money was not an issue for us,” says Eisen. “One thing we have been most impressed by is their desire to help in other ways aside from capital and managerial guidance. They have been willing to roll up their sleeves and connect us with potential customers. Some of them invested personal money outside the fund, and that has allowed us to expand our potential customer base.”
Investor John Kraft is an example of a fund member who brings specific experience to the table. A member of Fund 3, he is vice president of investor relations and strategy for ACI Worldwide, also an electronic payment company. Varied business experience, he says, provides for an effective group dynamic.
“We have some good debate. We have people from different locations, industries and expertise and certain people look to bring different insights into the deals,” says Kraft. “Someone from a different industry can think outside the box a little, and it results in a healthy discussion.”
ConnexPay met one of the most significant thresholds for investment — a revenue stream in place even though the software going live is still two to three months away. It has signed contracts with travel agencies representing more than $1.5 billion in annualized hotel and air sold.
“This reflects more than $5 million of expected net revenue to ConnexPay,” says Eisen. “Additionally, we have letters of intent or strong indications for another $3 billion or so of annualized spend, which would get us to over $15 million of net revenue. We are a high-margin business on a net revenue basis, so roughly 65% of the net revenue is expected to fall to net income.”
The investment will benefit the local economy as ConnexPay grows. Eisen says Naples is the ideal location for the support staff that will be needed. The company plans to soon announce a collaboration with Visa to increase issuance of virtual cards within the travel industry.
“And this before we’ve processed a single live transaction,” Eisen adds.
Hunting for gazellesConnexPay has the potential to become a gazelle — an uber fast-growing company that maintains annual growth rate of at least 20%. Tamiami Angel Funds is always on safari for early stage gazelles that can benefit from more than the financial investment in provides.
“I would say our tagline is growth and intellectual capital,” says Cartwright. “The investment of intellectual capital is the mentorship that can come from our members who are former business executives, titans of industry and entrepreneurs who have created and sold successful, privately owned businesses. You can make magic happen when you can combine money and mentorship."
Florida-based companies that have received Tamiami Angel funding include 71 Pounds in Fort Lauderdale; Catalyst OrthoScience in Naples; Fracture in Gainesville; Fresh Meal Plan in Boca Raton; MassiveU in Naples; PlusOne Solutions in Orlando; Streann in Miami; and Senzari in Miami/Francisco. Schoolflow, which dissolved in 2017, was based in Orlando. Other investments are in companies now located in California, Rhode Island, Michigan, North Carolina, Virginia, New York and Connecticut.
Tamiami Angel Funds is not a closed group. New members are considered — providing candidates meet the threshold of at least $1 million net worth, excluding primary residence, and at least $200,000 in adjusted gross income for each of the past two years and the expectation of the same in the current year.
“There is always room for more,” says Cartwright. “The more diverse our members are from all aspects — gender, race, industry, nationality, ethnicity — the better investment decisions we will make because we can call upon that diverse community vetting before we invest.”