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There Are Angel Investors in Minnesota

By John J. Alexander

Despite the recently reported near-death of the Minnesota Angel community (as seen in the local Twin Cities newspapers) I am here to report that angel investors are alive and well in our state. They are just a little more cautious.

Since the end of last year, there have been much complaining and gnashing of teeth over the lack of angel capital in Minnesota. Further, this lack of angel / venture capital is being called out as the primary reason why emerging companies fail.

While I would agree that there is less risk capital (angel as well as venture capital) than in the hey days before and in between the last two stock market bubbles, you only need look at the funding of emerging companies via the new Angel Investment Tax Credit to dispute that complaint.

In these tough economic times and in the context of competitive tax credits from 29 other states that enacted credits before us– the Minnesota angel tax credit reduces some of the risk of startup investing for potential angels.

The evidence speaks for itself. According to DEED (Minnesota’s Department of Economic Development) : In the 5 months of 2010 while the tax credit was in place, 67 companies received investments totaling over $28 million.

In the first 4 months of 2011,, $14.8 million was invested in 45 companies – with 8 months of the year to go! These are minimum numbers only representing companies qualified under the Angel Investor Tax Credit.

The belief of investors is that, regardless of the state of the economy, “Good ideas always get funded.”

While investment terms may vary, a novel idea with a defensible technology, attractive market(s), a good management team, a well thought through budget and business plan, an articulate pitch, and a realistic view of their value will always be attractive.

So, why aren’t more companies getting funded?

Many companies seeking capital do not meet all let alone a few of these criteria. Entrepreneurs, founders, CEOs need to respect that when they ask an individual angel, angel fund, VC, or strategic partner for capital that they put themselves at a disadvantage when they do not adequately prepare to present before asking for cash.

Your mother’s advice is still the best, “You only have one chance to make a first impression.”

It is hard to come back from a poor business model, rosy or poorly thought through financials, lack of marketing, distribution or manufacturing plans, or inarticulate leadership.

Further, founders disrespect those sources of capital when they complain about how hard it is to raise money but are unwilling to do the necessary work.

A recent story in the Star Tribune quotes a founder that had been in front of 20 angels and yet had been unable to raise funding. The entrepreneur suggests that Angels were risk adverse and that those Angels were the problem preventing this company from moving toward a bright future. What the reporter did not ask in the article was “Why did the Angels not invest?”

Could it have been that there was something about the company, its technology, its product that did not satisfy a need for potential customers?

Or its management or the terms of their offering that made the opportunity unattractive? I find that not all management take “no interest” feedback from potential investors as a message to take another look at what they are doing. I hear a lot of complaining about how hard it is to raise capital and not enough introspection and willingness to do the hard work.

Building a company, which includes raising capital and care of investors, is hard work. It takes long hours and dedication to improvement as learning occurs. It requires a serious and thoughtful effort and not only vision but an open mind to new information.

When founders of a startup ask others to take their savings and invest it into the founder’s business they are not likely to succeed if they are not prepared to say exactly how that capital will be spent, what value their products will offer the market, and how the investor will make a return on that capital.

In truth, if they can’t do these things, they simply do not deserve that capital. For those managements who prepare as best they are able but still need assistance, Minnesota still has many successful people (still here) who have done it before and support start-ups.

Such “advisors” offer a range of the most casual advice to the most intense handholding. Many of the most successful and experienced will make time to give entrepreneurs advice as a way to give back. There is no higher compliment than being asked for advice from someone who has prepared to ask the question.

If they become intrigued and respect the opportunity, they may invest themselves, introduce others or offer to join the Board of Directors. Other advisers may provide their capabilities as paid consultants. With consultants emerging companies get active and professional guidance and project work done by those on a part-time basis they might not be able to afford or justify on a full-time basis.

Company leadership must do its part and get educated on the process, do their homework, focus on the opportunity, and do the hard work.

John Alexander is President of Business Development Advisors, Founder and Chair of the Twin Cities Angels, and business author of the Angel Investment Tax Credit. Email him at:

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