Charlotte Angel Connection Episode 008: Rob Cummings Co-Founder of Deal Cloud
Join us for the final episode in a three part series exploring the path of a startup. We've spoken with Ramy Serageldin of Honeyfi and Dan D'Aquisto of 2ULaundry. This week we dive into a great discussion with Rob Cummings of DealCloud who just finished a $5.3 million Series B in December 2015.
Our focus here is to talk about the opportunities and struggles each company faces along the startup journey. Where have they been and what lies ahead? What’s the path they took and how did they do it in Charlotte. Along the way, we’ll get to know each founder and their company. I can’t think of a better way to explore the path of a Charlotte entrepreneur. Hopefully you will share the excitement over the next couple of weeks.
Today’s episode is with Rob Cummings, CoFounder of DealCloud. Rob helped grow DealCloud from 2 to 17 employees over a 4.5-year period with locations in Charlotte and New York City. DealCloud went from a spreadsheet concept to serving hundreds of M&A firms across the country with a hungry team executing a great strategy and concept.
Angel Investing - Tax Deferral on Gains
Tax minimization is something we all seek. In the good years the tax bill seems entirely too much and in the bad years the tax bill highlights what we made and didn’t get to keep.
I’ve written about Section 1202 before and how it allows investors and entrepreneurs to escape taxation on the first $10 million of gain on qualified small business stock (click here for earlier article on Section 1202).
There is another provision in the tax code where you can elect to defer your gain in a qualified small business stock – it’s referred to as Section 1045.
Many of you are probably familiar with 1031 or 2035 exchanges. These allow you to defer paying taxes when you sell real estate for ‘like kind’ real estate (1031) or allows you to move money from one insurance/annuity contract to another without paying taxes (1035).
Section 1045 is similar but it applies to Qualified Small Business Stock (QSBS).
What qualifies as QSBS?
The same guidelines apply for Section 1045 as in Section 1202. The company must to meet the following specifications:
1) It must be a C Corporation.
2) The stock in the C Corporation must have been issued after August 10, 1993 and the gross value of the assets of the issuing corporation must have been less than $50 million at the time the stock was issued and immediately after.
3) At least 80% of the assets of the corporation have been used in the active conduct of one or more qualified trades or businesses.
4) The stock must have been acquired at ‘original issue’.
5) The taxpayer/stockholder must have owned the assets for at least 5 years.
What’s the benefit?
If a company meets the conditions set forth above and you have owned the stock for at least 6 months when you sells your shares in the company you can ‘rollover’ the gain to another qualified small business stock within 60 days.
Pretty simple. Own QSBS for at least 6 months. Sell QSBS and buy new QSBS within 60 days and you don’t have to pay income taxes on ANY of the gain. Of course, the gain and subsequent deferral election has to be recorded properly on your tax return.
The initial law as passed referred specifically to taxpayers. However, it was amended one year later to a ‘taxpayer other than a corporation’ – meaning it applies to partnerships, trusts, LLCs, and more. The pass through nature of Section 1045, therefore, seems to apply directly to angel funds and their members.
What’s the catch?
There’s no catch. It’s a pretty straight forward and SHORTLY worded law (read it here if you choose - https://www.law.cornell.edu/uscode/text/26/1045).
With that being said, there is no reason to believe this is always the best thing to do. Remember, Section 1202 allows you to realize the gains and not pay capital gains taxes on gains up to $10 million (the % of the exclusion is either 50%, 75% or 100% - depending on when you acquired the shares).
And Section 1045 simply allows you to DEFER paying capital gains. In essence, your basis in the first company carries over with you and serves as the cost basis in the shares of the second company.
For example, let’s assume you invest $100,000 into a QSBS in 2012 and in 2016 it sold and your share was $1,000,000. If you were able to identify a new QSBS and invest in that company within 60 days of the sale of the previous shares, your basis in Company 2 would still be $100,000, not $1,000,000. At some point in the future, when you sell the shares in the new company you will have to pay taxes with a basis of $100,000 (though you may still be able to claim an exclusion under Section 1202 as long as the shares are held for at least 5 years).
So why defer when you can claim the gain and not pay?
There doesn’t seem to be any discouragement from combining Section 1202 with Section 1045 – or vice versa.
Huh?
What if you sold your stock in a company and the gain was $15 million? You could exclude up to 100% of the gain (depending on the year the company was founded) of up to $10 million. However, the remainder of the gain ($5 million) would still be taxed. If you properly planned and had another investment opportunity lined up you could invest up to $5 million and still not pay capital gains.
You may also have invested in a company in 2007 when the exclusion was ‘only’ 50% of the gain up to $10 million. As such, you may not want to pay taxes on the other 50%, or some portion of it.
If that’s the case, you could ‘rollover’ the gain from one QSBS to another QSBS and defer the gain. By all measures, it would also allow you to qualify the gain within THIS QSBS.
Planning Considerations:
1) Let’s assume Peter bought shares of Company X (a QSBS) in 2013 for $100,000. On April 1, 2016 the company sold and Peter’s shares were worth $1,000,000. This is a situation where the gain does NOT qualify for Section 1202 because the stock was not held for 5 years. As such, Peter has a gain of $900,000 – by all indications, the gain will be taxed at 23.9%. If he is able to identify a new QSBS to invest in prior to May 30, 2016, then he can defer all or part of the gain (depending on how much he invests in the new QSBS).
2) Let’s assume Mary bought shares of XYZ Corporation (a QSBS) in 2007 for $50,000. On June 1, 2016 the company is sold and her shares are now worth $750,000. Only 50% of her gain of $700,000 is excludable. If she finds a new QSBS stock to invest in, then she can reduce her capital gain for this year.
However, her cost basis in XYZ Corporation would carry her forward to the new company. If she holds the stock for 5 years though, all indications are that she can exclude 100% of the gain up to $10 million since she acquired the new QSBS in 2016.
Clearly, either one of these Sections of the Internal Revenue Code helps minimize taxes in any given year. However, the combination of the two can be pretty powerful. Unfortunately, taking proceeds from one successful QSBS and moving it directly into another successful QSBS is a lot easier to write about than to execute. If it was that easy to find winners all the time, we’d all be a lot happier – even come tax time these days.
William Bissett is the owner of and an Investment Advisor Representative of Portus Wealth Advisors, a Registered Investment Adviser. Registration does not imply a certain level of skill or training. Opinions expressed on this program do not necessarily reflect those of Portus Wealth Advisors. The topics discussed and opinions given are not intended to address the specific needs of any listener.
Portus Wealth Advisors does not offer legal or tax advice, listeners are encouraged to discuss their financial needs with the appropriate professional regarding your individual circumstance.
Investments described herein may be speculative and may involve a substantial risk of loss. Interests may be offered only to persons who qualify as accredited investors under applicable state and federal regulation or an eligible employee of the management company. There generally is no public market for the Interests. Prospective investors should particularly note that many factors affect performance, including changes in market conditions and interest rates, and other economic, political or financial developments. Past performance is not, and should not be construed as, indicative of future results.
Charlotte Angel Connection Episode 007: Dan D'Aquisto, Co-Founder of 2ULaundry
Join us for the second part of a three part series exploring the path of a startup. Last week, we spoke with Ramy Serageldin with Honeyfi – who is releasing their beta product as we speak. This week we dive into a great discussion with Dan D’Aquisto from 2ULaundry who just raised a $400,000 seed round. Next week, we will wrap up the three part series with a great interview with Rob Cummings from DealCloud to talk about their $5.3 million Series B round in December 2015.
Our focus here is to talk about the opportunities and struggles each company faces along the startup journey. Where have they been and what lies ahead? What’s the path they took and how did they do it in Charlotte. Along the way, we’ll get to know each founder and their company. I can’t think of a better way to explore the path of a Charlotte entrepreneur. Hopefully you will share the excitement over the next couple of weeks.
Today’s episode is with Dan D'Aquisto, CoFounder of 2ULaundy. 2ULaundry is a tech enabled laundry and dry cleaning service. They are guided by an unwavering commitment to the perfect customer experience and an obsessive passion for quality. 2ULaundry operates with a simple goal in mind: to help members maximize every moment of every day. Dan leads 2ULaundry's growth and acquisition strategy.
Charlotte Angel Connection Episode 006: Ramy Serageldin Co-Founder of Honeyfi
Join us for the first part of a three part series exploring the path of a startup. We've lined up Ramy Serageldin with Honeyfi - who is just releasing their beta product as we speak. Next, we spoke with Dan D'Aquisto from 2U Laundry who just raised a $400,000 seed round. We will wrap up the three part series with a great interview with Rob Cummings from DealCloud to talk about their $5.3 million Series B round in December 2015.
Our focus here is to talk about the opportunities and struggles each company faces along the startup journey. Where have they been and what lies ahead? What's the path they took and how did they do it in Charlotte. Along the way, we'll get to know each founder and their company. I can't think of a better way to explore the path of a Charlotte entrepreneur. Hopefully you will share the excitement over the next couple of weeks.
Today's episode is with Ramy Serageldin, COO of Honeyfi. Honeyfi is the first financial management app designed for couples from the ground up and it’s free. Ramy is a proven digital financial services executive and thought leader. He was the COO with Moven a web-based bank before leaving earlier this year to work on his current start-up, Honeyfi.
Angel Investments: Capital Losses
Not all startups end with a successful exit. As a matter of fact, we know the vast majority of startups exit with a thud rather than a bang. While no one really likes to see an investment lose money there is a provision in the tax code to take a little sting out for investors of unsuccessful enterprises.
IRC Section 1244 is a provision in the tax code allowing stockholders of Qualified Small Businesses to treat part of your loss as an ordinary loss rather than a capital loss! How much? For married filing joint filers, you can claim up to $100,000 and for single filers you can claim up to $50,000!
Capital Gains versus Ordinary Income
Let’s put this in context. Under most instances when you have a loss as a stockholder you are able to claim it as a capital loss. If you own it for less than a year, it is a short-term loss and if you own it for more than a year it is a long-term capital loss.
For simplicity and brevity, I’m assuming everyone understands the rates and the way short-term and long-term positions affect each other.
Regardless, if your capital losses exceed your capital gains, you can use up to $3,000 as a capital loss to offset ordinary income and then carry forward the remainder, if there is any, to the following year. The loss carryforward can then be used to offset capital gains in that year.
So losses, as we’ve known them for some time, allow for up to $3,000 to offset ordinary income. But IRC Section 1244 allows married filing joint filers to claim up to $100,000 to be used to offset ordinary income (individual and head of household can claim up to $50,000).
That’s up to a $97,000 difference for those math challenged readers!
As you can see from Table 1 below, the top ordinary income tax bracket is 39.6% and the top capital gains tax bracket is 20%. In essence, being able to deduct up to $100,000 of losses as ordinary income (offsetting income taxed as high as 39.6%) is much more impactful than being able to offset capital gains (offsetting income taxed as high as 20%). I’ve excluded the new tax on unearned income for simplicity purposes.
| Table 1: Taxable Income Tax Brackets | ||||
|---|---|---|---|---|
| Tax Rate | Single | Married Filing Joint | Head of Household | Capital Gains Rate |
| 10% | $0 - $9,275 | $0 18,550 | $0 - $13,250 | 0% |
| 15% | $9,276 - $37,650 | $18,551 - $75,300 | $13,251 - $50,400 | 0% |
| 25% | $37,651 - $91,150 | $75,301 - $151,900 | $50,401 - $130,150 | 15% |
| 28% | $91,151 - $190,150 | $151,901 $231,450 | $130,151 - $210,800 | 15% |
| 33% | $190,151 - $413,350 | $231,451 - $413,350 | $210,801 - $413,350 | 15% |
| 35% | $413,351 - $415,050 | $413,351 $466,950 | $413,351 - $441,000 | 15% |
| 39.60% | $415,051 + | $466,951 + | $441,000 + | 20% |
| Source: https://www.irs.gov/pub/irs-drop/rp-15-53.pdf |
Requirements
There are obviously necessary requirements for this special treatment.
1) At the time of issuance, the company was a small business corporation. The definition of a small business corporation means its aggregate capital can’t exceed $1,000,000 upon issuance of the stock. In the taxable year when aggregate capital exceeds $1,000,000 the company must designate which shares qualify;
2) Cash or other property was used to acquire the shares in the company and the stock must have been issued after July 18, 1984; and
3) For the most recent 5 years prior to the loss, the company must have generated at least 50% of its income from sources other than passive investment income (income excluding royalties, rents, dividends, interests, annuities, and sales or exchanges of stocks or securities).
Similarly, to Section 1202 and the capital gains exclusion, you must own actual stock – not a convertible note for this to qualify. Fortunately, preferred stock qualifies for Section 1244 treatment as long as it was issued after January 18, 1984.
Planning around Section 1244
Section 1244 limits who can claim the ordinary income loss to individuals, couples, and, in some instances, partnerships.
In order for an individual member of a partnership to make this claim, you need to have been a member of the partnership when the stock was acquired and stayed a member for the entire time the stock was owned.
As an added benefit, 1244 losses are treated as a trade or business loss for computing an individuals’ net operating loss (NOL). As a result, losses attributable to Section 1244 are allowed for NOL purposes without being limited to nonbusiness income. What does this mean?
Let’s assume I invest $100,000 into a C Corp making widgets in 2010. Five years later, in 2015, the business collapses and I lose all my money in it. At the same time, I quit my job in late 2014 and only had $25,000 of income for all of 2015. Since my stock is treated as a NOL, I can use $25,000 of the loss in 2015 AND carry-forward the remaining $75,000 of loss to the following year (technically you can carry it back for two years or carry it forward for up to 20 years). Pretty cool.
However, if I had invested $200,000 into the Widgets C Corp in 2010 while watching the business fail in 2015 and I had $500,000 of other income, I would only be able to use $100,000 of the loss to offset other income. The remaining $100,000 ($200,000 - $100,000) would be treated as a long-term capital loss and used to offset capital gains in the future. Any carry-forward for next year would simply be treated as capital loss.
With that being said, if I tried to sell my stock in the company for $50,000 in 2015, I’d be better off from a tax perspective to try to sell it over two years to maximize my tax benefit. Notwithstanding, selling failing, illiquid small business stock over two years may not be possible and the stock could be worth much less by waiting until the new tax year.
How to report?
Work with your accountant to properly report Section 1244 losses on Form 4797.
Summary
Obviously this can be pretty beneficial for investors in small businesses (e.g., angel investors). There are very few ways to reduce your adjusted gross income (AGI) these days but 1244 losses are one to maximize. The difference can be pretty compelling a $50,000 capital loss at a 20% capital gains tax rate would reduce taxes by $10,000 while a $50,000 ordinary income loss at a 39.6% income tax rate would reduce taxes by as much as $19,800.
Much like with Section 1202 gains (click here for my article on this), it’s important to work with your team to identify which investments qualify. Nonetheless, when investments unfortunately go bad, it’s important to maximize the tax impact of the loss. In this instance, IRC Section 1244 is likely your best bet.
For more information on losses described in IRC Section 1244, please click here.
*William Bissett is an Investment Advisor Representative with Secrest Blakey & Associates, a Registered Investment Adviser. Opinions expressed here do not necessarily reflect those of Secrest Blakey & Associates. The topics discussed and opinions given are not intended to address the specific needs of any reader.
**Secrest Blakey & Associates does not offer legal or tax advice, readers are encouraged to discuss their financial needs with the appropriate professional regarding your individual circumstance.
***Investments described herein may be speculative and may involve a substantial risk of loss. Interests may be offered only to persons who qualify as accredited investors under the Securities Act, and a Qualified Purchaser as defined in Section 2(a)(51)(A) under the Company Act or an eligible employee of the management company. There generally is no public market for the Interests. Prospective investors should particularly note that many factors affect performance, including changes in market conditions and interest rates, and other economic, political or financial developments. Past performance is not, and should not be construed as, indicative of future results.
CAC Episode 005: Dain Dulaney, Attorney to Startups and Investors
Dain tells the story of how the startup world has evolved in Charlotte over the last 2 decades. Given he rode a success story up and back down from the late 1990s to early 2000s, Dain has seen or been part of most of the startup successes in Charlotte. As such, he has great perspective on the resources available to Charlotte startups and has good insight into what it takes. This episode will bring you closer to Charlotte's startup ecosytem.
Dain Dulaney is a shareholder with the law firm of Bishop, Dulaney, Joyner & Abner. His practice is centered around working withe entrepreneurs, business owners and investors in and around the Charlotte market. Dain was born in Charlotte (and tells a great quick story about well known Charlotte landmark), went away to Washington and Lee University for his undergraduate degree and Wake Forest for his JD.
Listen in to learn more.
CAC Episode 004: Juan Garzon Director of Start Charlotte and Pitch Breakfast
Juan Garzon weaves in a great history of how he got involved in the Charlotte startup scene and how you can too with a great breakdown of the resources behind Charlotte's growing startup scene. If you are interested in learning more about what's going on, this is a great place to get started.
Juan is a business strategist & marketing coach who helps entrepreneurs and small business owners craft their story and build a system to grow their own business. He is also the founder of the marketing and sales communication firm, the Garzón Company, as well an organizer and mentor/advisor for a host of other entrepreneurial organizations in Charlotte.
Once you are done listening, head over to learn more about the things we discuss like StartCharlotte (http://startcharlotte.com/), Pitch Breakfast (www.pitchbreakfast.com/), and QC Fintech (www.qcfintech.co).
CAC Episode 003: Jon Boggiano Co-Founder of Versame
Jon Boggiano, Co-Founder of Versame, discusses all things startup in Charlotte and makes a great case for why people should move to Charlotte for their next startup.
After starting and selling Everblue - an education platform providing green jobs training for construction and building professionals - Jon and his brother, Chris, went back to school to get their MBA Stanford University. Already armed with entrepreneurial spirits, they moved back to Charlotte with better equipped to launch their next startup - Versame (www.versame.com). Versame launched The Starling - a smart little device that tracks the number of words your child hears and says each day.
They also moved back with a sense of what it takes to have a true entrepreneurial system in a community and have been working hard to build such a system in the Lake Norman area, just outside of Charlotte.
Listen in to learn more.
Dan Roselli - Managing Director of QC Fintech
This week's call is with Dan Roselli - Managing Director of QC Fintech.
Dan jump-started Charlotte's startup scene in 2011 when he purchased the old Packard Place building in uptown Charlotte. His vision was to turn it into a co-working space and use it to help incubate technology - specifically financial technology - companies looking to leverage Charlotte's vast experience in banking and finance.
Fast forward 5 years and QC Fintech is known around the world as a great incubator program for Fintech companies. The Charlotte community has embraced it as well with hundreds of mentors volunteering to support the class of 10 companies - out of more than 140 applicants in 2016.
Listen to find out what Dan has to say about where the Charlotte startup scene has come from, what it has to offer, and what he may look like down the road.
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.