Working with Angel Investors for Community Development

Over the past three years, with the support of the Rockefeller Foundation, CDVCA has carried out a program to explore ways to encourage individual investors, also called "angel capitalists," to do more financing of businesses that benefit low-income people and communities. This month we published the results of our work in Working with Angel Investors for Community Development: Analysis, Best Practices, and Case Studies.

By:
Kelly Williams
Community Development Venture Capital Alliance

The experience of communities with established angel networks and high levels of angel investment activity has illustrated how valuable well-organized groups of individual investors can be to a vibrant business community. Each year the nation’s 200,000 private individual investors invest more money into start-up, seed, and early-stage businesses than does the entire venture capital industry. Last year individuals invested over $15 billion into more than 36,000 businesses, but this number doesn’t reveal the even greater contributions angel investors make to these ventures in the form of time, energy, and expertise. CDVCA’s guide to working with Angel Investors examines means of tapping into this tremendous resource for the benefit of the communities in which CDVC funds invest.

The guide includes case studies of three individual investors who have made double-bottom line investments alongside community development venture capital funds: Dr. Conrad Schmidt, a veterinarian and businessman from Worthington, Minnesota, co-invested with a local fund and the Minnesota Investment Network Corporation to fund a biotechnology company with a freshwater management product that is assembled in his rural community; Manny Ratafia, who studied engineering and business and was the founder of a successful plastics laboratory co-invested alongside SJF Ventures to help start a zero-emissions plastics extrusion manufacturer; and Robert Flory, a former educational psychologist turned investor, invested with CEI Ventures in Taction, a call center located in a distressed part of Maine. All three of these individuals, each a capable investor and experienced businessman, contributed not just his money, but his time and expertise to these enterprises. The case studies illustrate the importance of all of these factors to the success of this kind of investment activity.

Also included are case studies of two CDVC funds that have fashioned programs to reach out to angel investors in the communities they serve: Northeast Ventures, whose managers have pooled their many years of experience in their community’s business community to create an angel network, and the Minnesota Investment Network Corporation ("MIN-Corp."), which has developed a business model that advocates a boot-strap approach to filling a rural equity capital gap. Both of these funds have achieved great success with these programs, accessing significant amounts of capital and expertise.

The guide also examines various efforts by state governments to increase angel investor activity by offering tax credits to individual investors and legal issues involved when trying to organize individual investors. The Alliance welcomes inquiries about this guide. You may contact the author, Kelly Williams, at [email protected].

CDVCA members received copies of the guide earlier this month, and additional copies are available for order on CDVCA’s website at http://www.cdvca.org.