Angel Investing: Finding Your Path in Charlotte


**Angel investments are high risk and illiquid investments. As with other investments, you can lose some or all of your investment. There will not be any public market for your interests.**

It’s fall in Charlotte.

In my house, fall means a few different things.

First, it means silence is replaced by the sound of a football game on the television. We don’t watch it all the time, but the sound puts me at ease. On Saturday afternoon it’s the bands playing songs and on Sunday it’s all about the Panthers.

Second, it means school is back and a regular schedule for the kids, my wife and me.

Finally, it means I’m coaching my son’s soccer team. On Sunday nights, I design the practice. On Monday, we practice – and have fun. Friday night I put together the line to maximize our team’s strengths knowing who is going to be there – and who won’t be. On Saturday morning, it’s gameday and one-hour of pure freedom from anything other than the joys of youth soccer.

Coaching soccer always makes me think about the basics. Every year so far, I’ve had a kid who has never played join our team. It’s tough because I also have a majority of players back for a 3rd, 4th, or even 5th season. Yet, I have to design a practice for some really good players while allowing for the new player(s) to simply get started.

So it is with angel investors. Some of us are new while others have 10, 15 or even 30 years under their belt. Experienced angel investors know the routine, the details, whose played before and who is just getting started.
So how do newbies compete or get started? First you work on the basics. Dribbling with the inside of your foot. Passing and shooting techniques are important….

On a more serious note you learn the basics of being an angel investor. Before you walk, you crawl. Before you run, you walk. Before sprint, you run.

One of the easiest ways to get started and start walking is to explore the community by attending some local angel investor events.

People interested in learning more about angel investing in Charlotte have some excellent opportunities. There are three organized funds I know about serving the Charlotte community. In alphabetical order, they are Charlotte Angel Fund, IDEA Fund Partners, and VentureSouth.

They are each different in their operation. Here’s a little background on each of them to help you get started.

Charlotte Angel Fund – Greg Brown is the administrator for the Charlotte Angel Fund (CAF) after starting it in late 2013. It is a committed capital fund that currently has 55 members (investors). In a committed capital fund, you have to invest money up front. Your money is pooled with the other investors and is used to invest in portfolio companies.

It is anticipated that CAF will be closing to new members sometime during Q4 2016, with a new fund (Charlotte Angel Fund II) being launched concurrent with the closure of CAF. The investment for CAF is currently $30,000 per unit and looks to be $25,000 for CAF II. For both CAF and CAF II, investors can own up to 4 units of the LLC.

CAF does not have specific geographic or industry boundaries, but it has historically invested in Carolinas-based companies in a variety of technology-driven industries. Typical investment size for the fund is $100,000 as a part of a $500,000 – $2,000,000 capital raise.

Charlotte Angel Fund meets on the second Wednesday of every month. Meetings begin with social time from 5:30pm to 6:00pm (food is provided and is part of the expense of the fund) and is followed by some general discussions including an article or newsworthy discussion prepped in advance by Greg.

From 6:30pm to 7:30pm, the fund has 3 to 4 new companies spend 10 minutes pitching their company followed by questions from the members (and guests).

After the companies pitch, they are asked to leave and the fund members and guests discuss the positives and negatives of each company. This is important because fund members are asked to vote on whether the company should be explored further in due diligence (see below).

Due diligence is spearheaded by Greg (capitalizing on his experience in private equity over the years) and 4 volunteer members of the fund. The idea here is to dive deeper into the company (e.g., financials, management team, sales/marketing, and exit opportunities). This involves the company providing more details on the requested items, a meeting with the company usually lasting 4 hours or more where the team goes through a due diligence process, and follow up questions and answers based on the meeting and subsequent materials provided.

At the end of the due diligence process, the team puts together a report and a recommendation to the fund members of whether or not to invest – and if to invest how much and under what, if any, terms.

As the fund invests in companies, your $30,000 becomes invested just like the everyone else. If you like a company but the fund doesn’t invest in it, you are more than welcome to contact the company directly and invest independently from CAF. If the fund invests in a company AND you really like the company, you can ‘add-on’ to what the fund has invested. You would do this to own more shares of a company you think has a good chance to really make it.

Greg and IDEA Fund Partners (see below) have developed a partnership for CAF members who are interested in IDEA Fund Partners. It’s not final at this point, so stay tuned for more information on this partnership.

Visit the website to stay up to date (www.cltangelfund.com).

IDEA Fund Partners – IDEA Fund Partners is based out of Raleigh/Durham but they come to Charlotte on a monthly basis and as a result have quite a few members in town. You may be familiar with them as they are part of Pitch Breakfast on a quarterly basis at HQ Charlotte.

Their reach is broader than CAF, as they see deals from throughout the Southeastern U.S. Additionally, they tend to be more specific than CAF in terms of the industries they target for investment with technology being a heavy focus.

IDEA Fund is run by two partners (Lister Delgado and John Cambier) and they are accepting new members in their ‘club’ model (see below for more details). Locally, Chris Halligan (from Payzer) is an adviser and operating partner with IDEA Fund.

They have two separate models – a traditional committed capital fund (like CAF) and a membership “club”.

The committed capital fund has a $250k commitment target (can be lower under circumstances) where the investor needs to invest the committed capital within 10 years. This fund is professionally managed by Lister and John who each have nearly 15 years of experience in the field. Due diligence is handled internally and John and Lister make the decisions about whether or not to invest funds in a company.

For companies making the grade, IDEA Fund Partners will sit on their board to help contribute to the success of the company moving forward – including making introductions to future investors for follow up rounds (though the fund does do follow on investments as well). If the fund invests in a company and you are member of the fund, you get the opportunity to do add-on investments.

Your commitment means you continually invest capital into the fund, not into individual investments. For example, you don’t get to choose which companies your share of the fund invests in. Rather your investment is pro-rata across the companies in the fund. An independent auditor comes in every year to value the fund and that affects the value of share purchases that year.

IDEA Fund “Club” – Club fee is currently $1,000/year and the club members can invest as little as $5,000 per deal. Club meetings are virtual where pitches are shown live via WebEx or recordings of the pitches are distributed to member. The club fee includes due diligence reports on worthy investments. For those interested, the club model allows for members to serve on the due diligence team. Additionally, there can be opportunities for club members to be a board member of companies or serve in a monitoring role/liaison between the company and club members. It also includes quarterly reports on companies the club has recommended in the past so you have an opportunity to continue to follow and learn more about your investment.

The Fund and club also have quarterly social events to provide an opportunity for members to get together, learn more about each other, and understand more about the fund/club investments.

Again, for CAF members interested in learning more about IDEA Fund Partners should talk with Greg Brown about those opportunities.

You can learn more about IDEA Fund Partners by visiting their website (www.ideafundpartners.com).

VentureSouth – VentureSouth has just expanded into Charlotte with Mac Lackey – having founded and sold both Kyck and Mountain Khaki – joining their already deep bench. As such, Charlotte becomes the 11th city in an expanding VentureSouth network with over 200 accredited investors.

VentureSouth has two separate involvement options. They have a committed capital fund called the VentureSouth Angel Fund II with a minimum investment of $50,000 (no maximum number of units) and a subscription which costs $2,500 per year. The two models work together.

If enough individual investors (subscription members of VentureSouth) commit to investing in a company, the fund will invest alongside those investors. The fund can only invest in a company if 10 active angels decide to invest at least $100,000 (combined). This gives limited partners forced diversification based on the collective expertise and investment decisions of the full VentureSouth membership.

Active members get their investment ideas through 5 two-month funding cycles per year run by the Managing Directors of Venture South.

How do the funding cycles work? The 4 Managing Directors of VentureSouth review 20-30 Southeast area companies per month. They then select the top 6 companies based on a thorough vetting process.

During the 1st week in a funding cycle VentureSouth facilitates a screening meeting where each of the 6 selected companies go to Greenville, SC to pitch to the VentureSouth team, local active members and video cameras live-streaming to the rest of the members. Afterwards, members have an opportunity to vote on the top 2 companies.

During the course of the next 2 months, the top two companies will be put through a comprehensive due diligence process as well as going on a road trip to all 11 cities to pitch their company to VentureSouth members.

Diligence teams are comprised of the VentureSouth team, active members, and outside industry experts. At the conclusion of the road trip and due diligence process, the due diligence team will present the report to each group. Each active member will then decide whether or not to invest. If an active member does invest, the minimum investment is $5,000 per deal.

Members can volunteer to be an active part of the due diligence team. In addition, the four directors lead the due diligence team based on their experience of investing in startups over the years.

Much like the other local funds, if VentureSouth doesn’t invest in a company, individual members can contact those companies and invest in them directly.

The meetings are held monthly except in December and July. During these monthly meetings, members will see at least one new deal each month and one existing portfolio company. These Charlotte meetings are scheduled to be from 4 – 6pm on the 4th Thursday of every month at the Chamber of Commerce building uptown, though, a more standard meeting cadence will be determined Charlotte members.

VentureSouth also has regular social networking events and seminars on important topics relevant to angel investors.

Visit their website to stay up to date on their meetings (www.venturesouth.vc).

Wrapping it up

As you explore these opportunities, you are going to meet individuals who can help you better understand this new world. Listen and ask questions. It’s a great learning process.

The opportunity to see a different world and observe people reacting to the same presentation as you can be really educational. I’ve learned a lot by being able to observe how others process and approach company pitches. Truthfully one of the biggest benefits of an angel meeting is to gain insight from others education, background and experience in short bursts.

At the end of the day, it’s either for you or it’s not. If it is, you will start to see the differences in the groups pretty quickly. Remember to pay attention to the little things.

Do they like pre-revenue companies, medical devices, fin-tech, or something else. Is the investment process handled by the members (CAF) or is it managed by a full-time staff (IDEA Fund and VentureSouth)? And many more details you will pick up on over time.

Find the right fit. Get started, work on the basics, and build on your skills. Become a part of the community and help Charlotte make a dent in the world through its startup and angel ecosystem.

*One important point to note is these funds have fees for operating the fund. Please inquire directly with each fund about the fees associated and the benefits to their fee structure.