Wednesday, February 23, 2011
Hacker News5

By guest authors Irina Patterson and Candice Arnold

I am talking to Tim Cartwright, chairman of the Tamiami Angel Fund. Created in October 2010 in Naples, Florida, this member-owned and -operated fund, offers early-stage capital in the range of $250,000–$750,000 to high-growth companies located anywhere in the state of Florida. There are 30 investors in the fund, who each put in $50,000. Tamiami Fund is the first angel fund for southwest Florida.

Irina: Hi, Tim. Why don’t you briefly start with your background?

Tim: I’ll take you back to college. I started at the University of Wisconsin. I graduated from there with an economics degree. I was recruited to Arthur Andersen in Chicago, spent a of couple years with them, and left and went off and started my own company, a supply chain consulting company called Benchmark Solutions.

I grew that company to about 30 consultants in four different cities: Minneapolis, Chicago, Cleveland, and Detroit. I sold it in 1999.

I should probably mention that, along the way, when I was in Chicago with my consulting company, I picked up my MBA from J. L. Kellogg School of Management at Northwestern University. I graduated in 1997. I did that part time on the downtown Chicago campus.

Then, I was co-founder of another company called By-Products Interactive, which is an electronic publishing and price reporting service for agricultural commodities, primarily agricultural by-products.

I raised angel and venture capital for that endeavor. I went up and down with the Internet boom and bust. That company is still actively going, and my business partner it. We’re an Internet publishing company now in that particular industry vertical.

I moved down to Florida, looked at buying a business, and investigated investment banking and merger and acquisition, private equity venture capital jobs.

I ended up going to Naples and started my own firm that specializes in middle market mergers and acquisitions. Then I joined an organization in Naples called the Gulf Coast Venture Forum, which was an angel and entrepreneurial networking group.

I became the leader of that organization, and out of it grew the Tamiami Angel Fund.

Irina: How exactly did the Tamiami Fund come about?

Tim: I was the president of the Gulf Coast Venture Forum, which is a 501(c)6 not-for-profit organization. We operate with two different chapters, one in Naples and one in Sarasota.

In 2007, the Florida legislature passed an economic development act that included the establishment of the Florida Opportunity Fund.

I was approached by a number of community leaders and asked whether the Gulf Coast Venture Forum was going to participate in the Florida Opportunity Fund. The Florida Opportunity Fund was a fund of funds approach in which the state established a $30 million fund that would invest in venture capital funds or angel funds that promised to invest in early stage Florida-based companies.

So, we looked at that economic development act, studied it, and thought that it might be a good time, a good impetus or catalyst, to rally around and create an angel fund.

Before we decided to dive headfirst into creating the angel fund, we wanted to understand the strengths and weaknesses of our region and assess the probability of being successful.

So, I knitted together the Southwest Florida Regional Angel Fund assessment team, which included economic development officials from six counties in southwest Florida – Sarasota, Charlotte, Lee, Collier, Glades, and Hendry counties – and higher education officials from Ave Maria, Florida Gulf Coast University, Edison State College, and Hodges University, along with the Gulf Coast Venture Forum and an organization called the Regional Business Alliance.

Those 12 organizations conducted an assessment of our region based upon a Ewing-Kauffman Foundation Community Assessment template that was published by Susan Preston and talked about what was the right angel organization for our region.

We conducted an assessment over a 12-month period, and the conclusion was that we had a need for and means to establish an angel fund in southwest Florida. That collective group charged the leadership of the Gulf Coast Venture Forum to go out and establish the fund.

At that time, we named the fund the Tamiami Angel Fund. I went about the business of organizing and creating the fund, and we were successful in raising $1.5 million, initially.

I went out on a fundraising tour in probably one of the worst economic times to go raise funds. Fortunately, it was successful enough that in October 2010, we did a closing of the Tamiami Angel Fund for [again] $1.5 million. We’re actively reviewing business plans and holding company presentations and have a couple of companies in to do due diligence right now. But we have yet to make our first investment.

Thursday, February 24, 2011
Hacker News1

By guest authors Irina Patterson and Candice Arnold

Irina: Who are the people who invested in the fund?

Tim: They are all angel investors, all private individuals. We don’t have any venture funds or other institutions in the fund right now.

Irina: Where is the fund located? Does it have a physical address?

Tim: Yes. The angel fund is located in my office. I’m an investor in the fund, so I have my own $50,000 in the fund – but then my company, Fifth Avenue Advisors, has a subsidiary called Peninsula Fund Administrators, which acts as the third-party administrator for the Tamiami Angel Fund. We do have a physical address. It’s 350 Fifth Avenue South, Suite 203, Naples, Florida 34102.

Irina: Did everyone invest $50,000? Is that the way it was designed?

Tim: Yes. An individual unit was $50,000, and according to our fund document, no individual could purchase more than two units so that we weren’t weighted toward any one angel. We have 29 investors in the fund, initially, with everyone at $50,000. One investor did purchase two units.

Irina: What is your current source of deal flow?

Tim: We get deals from our angel investors, which is part of the logic behind an angel fund. When I go out and talk to groups and explain angel investing, I often mention that angel investing is better done as a team sport, as opposed to an individual approach.

When you get into a structured investment vehicle like a fund, you’ve got that team environment, but you also have a disciplined and usually more rational decision framework, as opposed to the normal way an angel investment is made, which is usually an emotional decision, an individual decision.

It’s either just a gut reaction, or there’s some sort of emotional pull or tie to it because there’s a relative, former co-worker, or former business partner who’s made the introduction or is part of the management team or something, and there’s a personal request that an individual invest.

So, what’s worked well with the angel fund is talking to those angel investors and saying, A good way to approach angel investing is to say that you have an investment policy for early stage through expansion stage companies that are seeking money. This investment policy is that you’ve invested in the Tamiami Angel Fund, so you can direct all of that deal flow to the angel fund and go through a disciplined vetting process.

The answer to the person who’s asking you to review the business plan is, “Please submit your business plan to the Tamiami Angel Fund, which I have an investment in. If you are selected to present, I will make sure that I will attend that meeting. Should the angel fund invest, I will consider an additional add-on investment. If the business plan fails to be selected for presentation or investment, the likelihood of my investment is very, very small.”

It gives people a nice way to handle that early stage deal flow. Of course, accredited and high net worth individuals see a lot of deal flow. People figure out who’s wealthy in their families, who’s wealthy in their business networks, and they get deal flow.

That’s a long answer to what are our current sources of deal flow. But to get back to that question, it’s not only our angels but professional service providers who will send us deal flow.

By this I mean economic development agencies; as I mentioned, we cooperated closely with a number of them in southwest Florida when we did the assessments, so we’ve got good relationships there.

Again, we have good relationships from the assessment project with the universities, from which we get deal flow.

Another source is other angel groups throughout the state of Florida. Entrepreneurs. Actually, entrepreneurs themselves know about other entrepreneurs, so sometimes we pull deal flow from other entrepreneurs.

And then, I would say one source of deal flow that might be overlooked – and this is more of a tip for other angel fund administrators or angel fund managers – is to go back through your rejected deal flow that may be 24 to 36 months old.

There may have been a company that you rejected for certain reasons but really liked the industry. Sometimes, we’ll go back through our deal flow and call a company and find out that they were able to raise capital, that they’re successful, and they’re out looking more capital. You can bring them back into your deal flow. They may have achieved certain milestones that they hadn’t before and now qualify to present.

8/8/2012

Friday, February 25, 2011 

 By guest authors Irina Patterson and Candice Arnold

Irina: What is your geographical focus?

Tim: The state of Florida. As stipulated in our fund document, we are not allowed to invest in companies outside the state of Florida.

Irina: Can entrepreneurs pitch you directly, or do they have to get a referral from someone in your angel group?

Tim: They can submit their business plans to us without a referral. We take all of our business plans through our website: www.tamiamiangels.comWe use Angelsoft [online management platform] extensively as our website and our back-end deal flow management tool.In fact, according to our policy at the fund, I’m not allowed to talk to an entrepreneur until he or she submits a plan on the website.That does a couple of good things. It forces discipline, so that we record everything that comes in automatically, as long as we adhere to that policy of taking everything through the Internet. Also, it provides good transparency to our members so that conflicts don’t develop.You could get in a situation where there’s a certain segment of business plans that may be mailed to you and a certain segment that go through the Internet. If you’ve got multiple channels like that, some members of the fund might think there are business plans that are being held back or that they don’t have full visibility on every deal that comes in. We eliminated that concern right from the start by requiring that each deal must go through our website. Then we open up our deal flow management system to all of our investors, so they track everything that’s going on through Angelsoft.

Irina: Approximately how many deals do you receive a month?

Tim: We receive, on average, between 20 and 40 deals a month.Again, remember that even though we’re a new fund, we did have a bit of tailwind to the establishment of the angel fund because we had previously been operating as the Gulf Coast Venture Forum. The Gulf Coast Venture Forum was founded in 2001, so it’s celebrating its tenth year. That organization is still operational.

In southwest Florida, we’re trying to build our entrepreneurial ecosystem. We’re fortunate to have two angel organizations in southwest Florida.

One is the Tamiami Angel Fund, which is an angel fund, an investment structure, with committed capital. The second organization is the Gulf Coast Venture Forum, which is an angel investment network. They do differ. I don’t know if anybody’s gone into the difference between a fund and a network, but I could do that for you.

An angel investment network typically charges membership dues. The organization is closed to the public; that is, it’s only open to accredited investors. [At the Gulf Coast Venture Forum], we have membership qualifications and make each of our members pay annual dues and certify that they are an accredited investor, according the U.S. Securities and Exchange Commission’s (SEC) definition of an accredited investor.

Then we solicit deal flow. We select the best companies from that deal flow, hold our monthly meetings, allow the entrepreneurs to present, and then the Gulf Coast Venture Forum is pretty much done with its duties. Whether an entrepreneur gets investment at the Gulf Coast Venture Forum is really up to the entrepreneur and the angel talking with each other, developing a relationship, and holding whatever meetings they need to in order to progress toward an investment in the company.

The Gulf Coast Venture Forum is not a broker-dealer, it is not a matchmaking service, and it does not collect a sales commission. It’s just a not-for-profit organization that brings forth the best deal flow and puts that deal flow in front of our members, who are accredited investors.

Now, on the fund side of it, you’ve got a closed group of individuals who have already committed capital up front. We go through a similar process where we attract deal flow, select that deal flow, allow them to present. At that point the differences between the two organizations start to show.

 Sunday, February 27, 2011 Comments (0)

By  guest authors Irina Patterson and Candice Arnold


Tim: We [the Tamiami fund members]
typically go through a more robust question and answer period inside of the fund
structure [than the Gulf Coast Venture Forum]. When we’re done with our question
and answer period, we ask the entrepreneur to leave the meeting.

We have a discussion among the members, and then I call for a vote on whether the
company should be approved to enter a due diligence cycle so that I can give
immediate feedback to the entrepreneur after her presentation on whether our
fund is interested in her offering and, if so, enter into a due diligence cycle
with her.

Then we go through a structured due diligence, term sheet negotiation process and
final investment authorization from another vote from membership. It’s a much
more disciplined, organized process intended to invest capital, whereas the
angel investment network is a bit more spontaneous and ad hoc and takes more
perseverance from the entrepreneur and the angel.

Irina: Do you think in terms of valuation
when you are looking for companies to invest in?

Tim: I would say we’re typically going to
be looking at investing in companies that have a valuation of under $5 million.
There can be exceptions to this. But on average, we’re looking for companies
with fairly attractive valuations, not inflated valuations.

Irina: Do you have in mind how much equity
you will usually seek?

Tim: Yes. I think that each deal is going
to vary, but typically, for whatever round we’re investing in, it would probably
be between 20% and 40% equity in the company. Not every round is a $1 million,
series A round. Sometimes they may be looking for $2 million, sometimes $1.5
million. But that round is typically going to be between 20% and 40% of the
company.

Irina: Do you have in mind what kind of
return you would like and over what period?


Tim: Our fund is organized as a five-year
fund. That means we need to be invested and will distribute any profits we have
during that five-year period. At the end of that period, if an investment hasn’t
been liquidated or bankrupted, we will re-title the shares on the individuals’
names and the fund’ll be done after five years.

Our investments will, we hope, have some success within five years’ time. We also
project for the fund an IRR of 25%. Now, I can tell you, and you probably have
heard this a number of times, this type of early stage investing in private
companies with unknown management teams, unknown products and unknown prospects
is highly risky. So, there’s definitely the potential that all of our investment
capital is lost.

Irina: In what stage of a company’s
development would you prefer to invest?

Tim: Well, because we are fortunate in southwest Florida to have two angel organizations that are very cooperative and collaborative, what we’ve done with our deal flow is, where both organizations are working together effectively, we typically direct the pre-revenue companies to the Gulf Coast Venture Forum and the revenue-producing companies to the angel fund.

Then if a company distinguishes itself at either meeting, we refer that company over
to the other angel organization. From a fund perspective, we are looking for
revenue-producing companies, which would put us in the stage that you’ve defined
as validated with customers, because customers means
revenue.

Irina: Do you look at the size of the
market?

Tim: Again, it varies by deal. Certainly,
with most business plans that we’re looking for, you need to have a substantial
addressable market so that if your market penetration is in the single digits,
you still have a fairly attractive and large company for M&A, which is the
most likely exit strategy.

We will be looking at those marketplaces that have large addressable markets, I
would guess north of $500 million. Probably more likely, we’d be looking at a $1
billion total addressable market so that you can, again, a fraction or a small
amount of the marketplace and still have a profitable, successful company.