Troy Knauss focuses on entrepreneurship ecosystem

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Troy Knauss speaking to a group of entrepreneurs and investors in Florida.

Photo of Troy Knauss speaking in Greensboro, North Carolina

Troy Knauss concludes an Angel Resource Institute workshop in Greensboro, North Carolina to an audience of local investors and entrepreneurs.

As an accredited investor, Troy Knauss has built a diverse portfolio of angel-only backed deals with some successes, a few failures, and a whole lot of opportunities. In addition to these deals, Knauss has spent time growing companies and volunteering on boards that benefit the entrepreneurial ecosystem. His recent boards include Vice Chairman of the Angel Resource Institute, a spinout of the Kauffman Foundation, the Greensboro Partnership’s Entrepreneurship Connection, The Launch Place, and Wake Forest University’s Advisory Council for the Center of Entrepreneurship. According to Knauss, “There is no greater reward than helping a fellow entrepreneur realize his/her dream. It doesn’t matter if that dream is to simply start a company to build an income or to grow a high-value business with the ability to create major wealth creation when it is sold.” Knauss expects to continue to invest in 4-5 deals per year.

One of his latest ventures is E&I Risk, an insurance company that offers affordable and complete policies to early-stage and startup companies. According to Knauss, “Most insurance agencies don’t understand the inherent risks of a startup and, given that many startups don’t have significant revenue, many insurance agents aren’t willing to put in the time and effort for a low-priced policy. That’s where E&I Risk enters the field. E&I can provide very competitive quotes that include comprehensive coverage needed to protect entrepreneurs and their investors.” Check out E&I Risk. Click here for a quick quote on a Directors & Officers insurance (D&O) policy.

If you are interested in meeting with Troy to discuss your current business or opportunity, visit

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Angel investors must aim for at least 8-10 deals

It is important to know your strengths and keep your investments in that area

Angel investing has taken off in India in a big way in recent months. In early 2014, on an average, around 10 angel deals would be reported a month. From the second half of 2014, the angel space has seen a rising trend. The monthly deal count crossed 30 in August 2015, and has remained in the 30-40 range since then; an increase of about three times in a year.

The spurt in news flows on start-up investing seems to have caught the attention of the average high networth individual (HNI). For every HNI who is already an angel investor, there may be five new investors actively considering this asset class.

But before you jump on to the bandwagon, ascertain how many investments you want to, or will be willing, to make.

Arduous activity

This is a vital point, since unlike normal investment avenues that allow exposure to fixed income or secondary market equities, where entry and exit are relatively easy, angel investing is a very time-consuming and involved activity.

Neither entry nor exit is easy when it comes to angel investing. Finding a transaction is not easy, unless you become part of angel networks, or have already made several deals, and the market knows you.

Having found a likely deal, the process of evaluation, negotiation and deal closure can take a minimum of three months in a best case scenario. Once invested, be prepared for an average holding period of at least three years.

In the face of this seemingly arduous task, the HNI might think, “Let me make one or two investments, and see if it is worth it”. That would be just the wrong approach, as it ignores the risk inherent in the start-up asset class. Says Vikram Chachra, a veteran angel investor who has made over 20 such investments.

“I think four out of five start-ups are destined to die in a normal environment and the casualty number can be even higher, when there is a funding slowdown.”

A risky class

Given that start-ups will naturally be the most vulnerable type of companies, mortality is bound to be high. I have seen a few cases where people have made one-two investments which haven’t worked out, and that’s been the end of their angel investing foray.

“Angel investment is a high-risk investment class. If the equity class is like a jungle safari to you, then trust me, angel investment is the extreme adventure sport, not for the faint-hearted,” says Archana S Awasthi, a Mumbai-based angel investor.

To mitigate the risk of start-up failure, one needs to aim for a minimum number of companies in your portfolio.

“Building a portfolio is very important because it’s very hard to hit a bull’s eye on your first shot. A portfolio allows you the luxury of being wrong and takes multiple bets on those outlier ideas, which provide outsized returns,” says Chachra.


A good thumb rule is to aim for a minimum of 8-10 investments. Seasoned angel investors tend to have much more than that.

There are several investors in India now with 20-40 companies in their portfolio. Have they gone berserk? Not quite; they are simply following old fashioned portfolio diversification philosophy. Even if you look at the secondary market, most mutual fund schemes or HNIs’ portfolios created by wealth firms, will have 20-30 scrips. If in the secondary market risk mitigation is important, it is equally so in start-up portfolios.

There is one important difference in angel investing though. While in the secondary market, diversification typically means spreading risk across sectors, in angel portfolios, it tends to be concentrated. This is because, unlike investing in the secondary market, where the investor’s role is passive, investors tend to play an active role in start-ups.

With meagre resources, start-up teams are often short on expertise. If an investor can add value to the start-up, it benefits both the company and the investor. Besides, in a start-up, the investor often has to work towards an exit, particularly, if it is via strategic sale. “It is important to know your strengths and keep your investments in that area,” advises Archana.

Fund allocation

Building a portfolio of 10 investments implies an ideal allocation of around ₹1crore. That will allow you to make some large investments, along with a few small investments of ₹5-10 lakh each.

Most investors tend to start with small investments; often as part of an angel investing group. Several such groups exist now. Once investors become more comfortable with angel investing, some venture out into solo investing, or take the lead investors’ role.

This would normally require a larger investment size of ₹25 lakh or more. Also, companies normally do not want to deal with too many investors. Given a choice, they would like to take a few large investors, rather than several small ones.

Besides money, expect to allocate time as well. Finding 10 companies to invest can take two to three years. If you are considering an exit horizon of three years, you are looking at a five-six-year cycle for your first set of 10 investments. So, why still do it? Same reason people do adventure sports. It can be addictive and rewarding if you do it right.

The writer is partner at Wisdomsmith Advisors LLP, which also runs an angel platform, Wisdom Angels

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Angel investing – don’t risk all your retirement money

Stephen Gugu

Stephen Gugu

Much has been written about the lack of appetite among local investors to back African technology start-ups. In East Africa, the majority of the funding comes from foreign entities, with local investors opting for traditional industries such as real estate. As a result, many businesses, particularly those in the early stages remain cash-starved, unable to scale.

Kenyan finance professional Stephen Gugu seeks to fill these gaps by linking angel investors with technology-focused early-stage businesses operating in East Africa. After years working to help start-ups secure financing, Gugu in 2014 co-founded the angel investment network ViKtoria Ventures. Through the network investors pool funds together to back start-ups that require a minimum of US$50,000 investment.

Gugu shared his experiences in angel investing, and why investors in Africa should not expect the kind of returns some investors in Silicon Valley have made. Below are edited excerpts.

What was the motivation behind forming ViKtoria Ventures?

Since 2011 we were involved in working with early-stage companies helping them prepare for investment. There were a couple of grants that some of the people we’d been working with received, but really in terms of hardcore investment from local or international investors, there was not as much as we would had wished to see.

We looked at the start-ups we were working with and realised most of the funding coming in was foreign – a couple of VC funds, grants and some angel investors. That kind of money helps a company in terms of being financially nourished but does not help the company with new contacts, networks or introductions. So you find that when you have cross-border investment they tend to help in terms of funding – but for an early-stage company you need so much more.

If you look at the typical trajectory for a start-up – you begin with your own money, before you go to VC investing or seed investing or private equity. In Kenya, as well as the rest of East Africa, the concept of angel investing is not present.

You find that people will start with their own money, and then they will have to apply for start-up competitions or go for grants. The challenge with grants is that they usually have some expectations for the start-up. So angel investing for us was just trying to unlock this handicap. We started late 2014 and we are just closing an investment from the previous round.

Do you come across enough businesses that are worth investing in?

In my view, yes I see them. We see companies that are scalable. We see entrepreneurs that are very passionate. They have a product that they don’t need to put in as much capital to scale. The key issue is that they just need someone to believe in them, to move them to the next stage.

Describe the profile of angel investors ViKtoria Ventures is working with.

About 60% to 70% of the investors in our network are locals and the rest are foreigners who live in Kenya, drawn from far places like Europe, and even as close as Uganda.

Most of them are former entrepreneurs. I use the term “former” because they have already made some cash, so they understand the journey. If you look at most angel investors, you’ll find them empathising with the younger entrepreneurs. These are also people who have disposable incomes and they must have a certain pedigree for risk. The general rule around angel investing, if you look at what’s recommended in portfolio allocation, is to not put in more than 10% of your entire portfolio. If you are going to engage with us, we advise as a minimum $5,000 per investment and at least one investment a year.

But that $5,000 cannot be your retirement. You have to analyse whether you can really take the risk on this amount or not. You have to realise that you might lose all that money and that you must be okay with that fact. Early stage investing is risky. In some cases, you back very young entrepreneurs who do not have much experience running a business.

You have made some personal investments, and even had some losses. What’s your motivation for being an angel investor?

I want to go to heaven (laughs). I find it interesting, and I love engaging entrepreneurs when they are trying to create. I love that part of the business of trying to make something out of an idea, or a concept, or a small business. Secondly, for me it’s also about giving back. I always feel that for everything that I have gotten I should be able to give back to people who, like me, are entrepreneurs trying to grow their businesses.

The best way I discovered to accomplish this is to bring in other people – and also to invest money myself to push these companies up. This sounds very ‘angelic’ but in Africa this is what’s needed. I feel there is a need for people to start pushing these companies because otherwise nobody else will do it. I’ve worked closely with entrepreneurs; I’ve coached so many and reviewed so many businesses, but if you don’t manage to get them funding, then you are just wasting time. If you do not manage to grow the business into a corporate – then you have not done what you should have.

The second point is the return. Who knows, maybe some of these companies that we are taking bets on today end up making supernormal returns. But at the really early stage, you just don’t know where the company can go. It could be a rock star or it could be nothing, and I have experienced that.

I took a gamble on a team and put in some cash [but] after a couple of months they changed direction so I lost some cash through that. [As an early-stage investor] you have to realise that you may lose the cash you are putting in. When I speak to people and they tell me, “I’m not ready”, or “I’m not interested”, I understand where they are coming from because $5,000 is a significant amount of money.

If you want, you can buy a plot, invest in government bonds, put it into your child’s educational policy or into a mortgage. It’s not like there is a shortage of safe investments. But if you get it right [as an angel investor] you could make a lot of money.

The investors who backed Facebook in its early stages made huge returns. Could that happen here?

In my opinion, you won’t see those kind of Facebook success stories in Africa. You will see guys that make 100 times their investment, but 10,000 times – I don’t see that happening. It’s just that African companies will scale around Africa, but you won’t get many scaling into Asia or Latin America. If you look at your American counterparts, they are scaling everywhere. So here, yes, you will make money, but I don’t think you will get the kind of returns Facebook investors got.

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Tech entrepreneur funding Hulk Hogan’s Gawker lawsuit

Peter Thiel, a high-profile tech entrepreneur and investor, admitted late Wednesday that he’s been funding a lawsuit against Gawker Media that threatens to cripple the company.

Thiel, who founded PayPal and is an investor in Facebook, told The New York Times that he’s spent roughly $10 million to back a lawsuit brought by professional wrestler Terry Bollea — better known by his stage name, Hulk Hogan — against the owner of Gawker and other sites.

Thiel told the Times that his animus stemmed from what he viewed as bullying by the company’s blogs. In 2007, Valleywag, an on-again-off-again Silicon Valley offshoot of Gawker, wrote a post about Thiel’s sexual orientation titled “Peter Thiel is totally gay, people.”

“It’s less about revenge and more about specific deterrence,” he told the Times. “I saw Gawker pioneer a unique and incredibly damaging way of getting attention by bullying people even when there was no connection with the public interest.”

Thiel told the newspaper that he has been quietly working against Gawker for years and has financed an effort to find potential plaintiffs against the website.

A jury recently ruled in favor of Hogan’s claim against the company, which published part of a sex tape involving him in 2012. Jurors initially awarded $115 million to the wrestler and later added an additional $25 million to the award.

A judge’s decision on Wednesday to deny Gawker a new hearing is now being appealed to a higher court.

In addition to being a prominent figure in Silicon Valley, Thiel is also known among conservative political circles. He is a delegate in California for Donald TrumpDonald TrumpWhy Wasserman Schultz must go Sanders laughs off Trump’s third-party question Sanders: Clinton showing ‘tinge of arrogance’ MORE, the Republican nominee for president.

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Is Your Angel Investor Playing Power Ball or Money Ball?

Sophisticated investors in high potential start-up companies generally take one of two approaches to angel investing, which I call “power ball” and “money ball”. Either of these approaches can yield high financial returns, but their success requires angels to stick to the rules of the game they are playing. Investors do poorly when they confound the two games.

Types of Investment Philosophies

What I call power ball, after the multi-state lottery of the same name, are two prevailing Silicon Valley investment philosophies.  The core principle of this approach is that angels make money off of a very small fraction of their investments in start-up companies, maybe one-in-thirty companies. But the low probability of hitting a winner is offset by the enormous magnitude of the returns on the winners. In angel power ball, the one winner goes public or is acquired at such a huge price that it more than makes up for all of the failed investments.

Money ball, named for the statistical approach to assembling a winning baseball team, is the most common investment philosophy of many East Coast angel investors. In money ball, investors pay close attention to the numbers. They look investment opportunities that have the right combination of potential outcomes, valuation, and terms. Because most external-equity-backed startups exit through acquisitions at less than $40 million, getting in at a low valuation is important for these investors to earn a return commensurate with the risk they are taking.

If you are playing power ball, little matters to your investment philosophies other than getting into a great deal. That means investing in a team and an opportunity that stands a chance of being a unicorn. The valuation of the pre-seed round investment in company like Facebook or Alibaba makes very little difference. Whatever the valuation is, the investments will be a homerun. The early round valuation never be unrealistically high and terms can never be too entrepreneur-friendly because you need to be in the Unicorn deal at any cost to succeed.

The game is different if you are playing money ball. The deals have zero probability becoming unicorns. As super-angel David S. Rose, author of Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups, explains angels have to look at the statistics to play money ball. Valuations that are too high or terms that are too entrepreneur-friendly will undermine the deals.

To play power ball, an angel needs to see start-ups that have the potential to be moonshots. That means investing primarily in Silicon Valley companies. If the angel is located in a place like Cleveland, Ohio (where I am), he or she has to be willing to invest out of region. There just aren’t the right types of companies locally for the power ball strategy to work.

For an angel to play money ball, he or she needs to stick with terms that permit a high return on modest exits. That means avoiding overvaluation. It also means stricter deal terms, such as protective provisions, cumulative dividend rights, participating preferred stock, and founder vesting.

Investment Philosophies Need Consistency

Angels can make money playing power ball or money ball, as long as they stick to the rules of the game they are playing. That means being internally consistent. Mixing and matching elements of the two games is a recipe for disaster.

Lottery Photo via Shutterstock

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ClearTax raises $2 million from FF Angel and Sequoia Capital

NEW DELHI: Financial technology startup Defmacro Software, which owns and operates online tax returns filing platform ClearTax, has raised $2 million (Rs 13.3 crore) from FF Angel, the angel investing arm of Peter Thiel-led Founders Fund, and Sequoia Capital.

The five year-old company will use the proceeds from the round to launch a slew of consumer-focused tax-saving products, including mutual funds and other equity-linked saving schemes. It will also be adding to its leadership team, said Archit Gupta, chief executive of ClearTax.

“We have taken the long route, and now we are extremely excited to have some of the biggest thought leaders and investors on board as our partners,” Gupta said. “We are an instrument-agnostic platform that will allow consumers to choose their rate of return and select what to have in their tax savings basket.”

The transaction, which closed last week, marks FF Angel’s first investment in India, and comes a month after Bengaluru-based ClearTax secured $1.3 million in a seed funding round from a group of Silicon Valley investors including PayPal cofounder Max Levchin and Scott Banister, an early investor in Facebook and Uber.

According to Gupta, ClearTax has over 1 million consumers e-filing their tax returns, and the company is targeting bringing on board 5 million users by the end of the current fiscal, and recording transactions worth $1 billion over the same period.

The startup provides a full stack of services, including helping with filing of tax returns, incorporating companies and undertaking service tax registrations, for a fee. The company was also among the first domestic startups to participate in the prestigious Valley-based startup accelerator Y Combinator’s programme in 2014.

ClearTax also counts One97 Communications, the parent company of mobile digital payments and ecommerce platform Paytm, as an early investor, with the latter having reportedly invested about $50,000 last year.

FF Angel has been an early backer in a number of well-known ventures, including, tech-focused web publication PandoDaily and Wi-Fi and Bluetooth-enabled home device maker Nucleus, among others.

Founded by Peter Thiel, Ken Howery and Luke Nosek in 2005, Founders Fund is known for having taken some of the boldest bets in ventures that are now regarded as Unicorns, a list that includes, Palantir, SpaceX, Airbnb, Spotify and Lyft.

The three founders, along with Tesla Motors’ Elon Musk, LinkedIn’s Reid Hoffman and Yammer’s David Sacks, are considered to be leading members of the infamous ” PayPal Mafia”, members of which have gone on to found and develop some of the leading technology companies in the world.

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Mumbai’s home to highest number of angel investors

Anand J Shilpa Phadnis | TNN | May 25, 2016, 04.13 PM IST

Partners in enterprise: Top Indian angel investors, their investments, profiles and geographical spread.

Bengaluru may be India’s startup capital, but it is Mumbai that is pulling many of its financial strings.The country’s financial capital is home to the largest number of angel investors, says data from the angel investing platform LetsVenture. The Mumbai-Pune belt has 332 angel investors, followed by Bengaluru with 298 and Delhi-NCR with 285.

India has 1,800 angels, a fraction of the US’s 300,000, indicating that the country’s angel investing ecosystem is still in its infancy . But the ecosystem is growing rapidly . The number of angel deals in 2015 almost doubled to 691 -almost two startups raising angel investment everyday -from 370 deals in 2014.

The study by LetsVenture finds that Indian angel investors spend only 4 to 10 hours in doing a due diligence of the venture they plan to invest in, whereas in the US, investors spend 20 hours on an average.It also says that the meetings of angel investors with entrepreneurs are often unscheduled, while in the US, it happens twice every month, and planned in advance.

“India is a country of first time entrepreneurs and many of them need handholding.Active investments (where investors are actively involved in their investee companies) outperform passive investments,” said Sharad Sharma, founder of software product association iSpirt. Indian angel investors tend to be sector agnostic, but in the US, 50% of the investments are done by sector experts. “You can handhold only in sectors of your own expertise.”

LetsVenture says 2016 will be the year of bridge rounds – a round of funding that comes between the seed round and a full-blown Series A round – and angels will participate in these rounds. “The bigger rounds of funding have become harder and fewer, so startups will go for smaller bridge rounds while protecting their overall valuation. Angels are participating as it helps them protect their investment,” said Shanti Mohan, co-founder of LetsVenture. Founded in 2012, the platform has close to 1,500 angels from 23 countries, most of that from India.

Unlike in the US, angel investors in India invariably have to wait for MA opportunities or follow-on investments instead of an IPO to get an exit from their investments, says the report. Most angel investors in the US get an opportunity to exit in 3.5 years of investment. But in India, an exit is very uncertain. This is seen as an impediment to grow the angel investor community beyond technology experts.

“Now there are high quality startups in India. But there is not enough local capital available for them and unless there is enough Indian investors to do the subsequent ro unds of funding, angels will struggle to exit,” said Mohandas Pai, chairman of venture fund Aarin Capital. He said most investors in India are overseas ones who go by global mood swings while 60% of Chinese startup investments happen through domestic funds.

The study indicates that new angel investors can co-invest with other seasoned angel investors to increase their success ratio, and finds that there is a 17% success ration while doing so. Co-investing with accelerators gives angel investors a success ratio of only 9%, says the report.

Anupam Mittal, founder of People Group, which runs, and who is a prolific angel investor, said that the current year would see increased activity from angels as the prices are attractive.

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A Toronto-based founder came to Philly to get women excited about angel investing

Since 2015, Katherine Hague has been running a challenge to make 1,000 women angel investors.

That’s why the Toronto-based founder of Female Funders spoke at an event that I organized last week, answering the question: “How do I get started in angel investing?”

Philadelphia’s funding ecosystem came together at PwC to talk to over 40 members and guests of women’s professional group Ellevate Philadelphia about early stage investing.

While most of the crowd had heard of angel investing before, many didn’t know the details and the nuances that go along with early stage funding. Hague shared some tips with us about how to get involved.

  • Invest up to 5 percent of your net worth, in 10 investments, over 2-3 years.
  • If you’re new to early stage investing, you should begin investing with an angel investment group or through a venture capital fund, rather than as a lone investor.
  • Check out 40-50 startups before writing your first check, which can easily be done by attending events such as a Dreamit Demo Day or local universities’ startup competitions or by visiting the website AngelList.
  • Learn from other early stage investors, not from startup founders who are busy running a business.

The event emphasized how much of a role community plays in early stage investing. Along with Hague, some of Philadelphia’s early stage investors from firms like Rittenhouse VenturesSafeguard ScientificsJumpstart NJ, Robin Hood Ventures and Osage Venture Partners, some of whom were also sponsors of the night, were on site to help educate the crowd. Women spent an hour mingling, asking questions and gleaning insights with the speakers and sponsors.


“Early stage investing is a lot easier to get involved with than I thought,” said Paige Carter, who works in business development at CEB (formerly Corporate Executive Board). “And now, I have a game plan for getting started.”

Many of the women said how exciting it was to see so many women interested in investing in Philly startups.

“It was exciting to see interest in the angel investing world from previously untapped sources,” said Jennifer Mantini, a partner a PwC. “Expanding the ecosystem to involve more players helps the entire community.”

Are you looking to get started in investing? Check out Female Funders for more information on Angel School.


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Executive Suite: How angel fund leader Tim Cartwright found his wings

June Fletcher is a business reporter and editor with a focus on the economy, finance, banking, wealth management and residential real estate. She produces the Minding Your Money web video series that appears in the Business section. Her Executive Suite column, which profiles business leaders in the community, appears Mondays.

How did a humble paperboy eventually become the head of two of the largest angel funds in Florida?

For Tim Cartwright, chairman of Naples-based Tamiami Angel Funds I and II, it’s been a long and remarkable journey.

Born in Illinois, Cartwright moved numerous times as a child, as his father changed jobs as city manager of different towns.

“I went to four different elementary schools,” he said.

But the frequent moves — as well as the need to compete with three high-achieving siblings — made him both adaptable and ambitious.

By fifth grade he had established his own paper route; by high school he was delivering huge bundles of newspapers to other paperboys.

“I used to get up at 3:30 a.m. and pull the bundles off of semis,” recalled Cartwright, who at the time was living in DeKalb, Illinois.

Cartwright had other jobs as a teenager, too. At 14 he worked in a cornfield behind a detasseling machine, ripping silks off cobs the machine missed.

But he also played soccer and tennis, and he got good enough grades to be accepted at the University of Wisconsin, where he studied pre-engineering.

But a short stint with IBM doing computer modeling was enough to convince him that an engineering career really wasn’t for him.

“I’d spend eight hours doing modeling and realize I hadn’t talked to anyone all day,” he said. “I switched to economics and became president of my fraternity.”

After graduation, Cartwright joined Arthur Andersen, at the time one of the “big five” accounting firms. But he soon grew restless with corporate consulting.

So when he was 24, he nervously approached his parents about starting his own supply chain consulting company.

To his surprise, they were fully supportive of the idea, telling him that the time to take big risks was when you are young and unburdened with a mortgage and family.

“They told me that if I failed, I could get back into the workforce easily,” he said. “My father was in love with the idea of entrepreneurship.”

Cartwright called his new firm Benchmark Solutions and came up with ways to integrate and automate sales force systems like prospect tracking and customer discounts.

Eventually, he had 40 consultants working for him in four offices.

By the time he was 33, Cartwright was ready to move on, and he sold the business for $1 million to a colleague.

That was a mistake, he learned.

“I never fully collected the money,” he said.

Cartwright decided he needed a master’s in business administration to boost his credibility, and so he headed to the J.L. Kellogg Graduate School of Management at Northwestern University.

He then looked around for another business and decided that there was a need to modernize the way meat byproducts — a $54 billion per year industry — were bought and sold.

He and a partner raised more than $2 million in investor capital and in 2000 bought two companies, a byproducts brokerage and Jacobsen’s Publishing, a company founded in the mid-1800s that covered the agricultural byproducts market.

“It was so old the founder used to go to the stockyards and count the hides of cattle about to be slaughtered,” Cartwright said. “The news would be delivered by Pony Express.”

Cartwright and his partner called the new Chicago-based company By-Products Interactive and expanded its reach, creating an electronic marketplace to publish research and trade product.

But after 9/ll dampened Web-based businesses, the company began losing money, and Cartwright decided to ease out of it and leave it with his partner.

Cartwright and his wife, Amy, decided to move to Florida, where they first settled in Miami. They moved to Naples when Cartwright accepted a job here with a mergers and acquisitions firm.

“It took me nine months to get fired,” he said.

So in 2003 he formed his own MA firm for middle-market companies, Compass Advisory Group. In 2005 he became managing director of Fifth Avenue Advisors, a family wealth and business advisory firm that also handles MA and angel investing.

Cartwright also became part of an angel club, Gulf Coast Venture Forum, that was looking to raise venture capital.

Soon he was applying his supply-chain expertise to the enterprise and was chosen as chairman of Tamiami Angel Funds I and II, which together have provided $8.4 million in financing to a portfolio of 16 companies.

Although the fund shows a preference for companies based in Florida, only one is based in Naples — MassiveU, a mobile application provider that delivers learning content through smartphones, tablets and other online devices.

Cartwright is careful to note that the funds’ wealthy investors aren’t backing unproven startups and that they understand their investments are often risky.

But many are retired executives who aren’t just looking for return on investment — they want psychic pay, as well.

“They enjoy solving business problems and want to be mentors,” he said.

Though the two angel funds he manages only invest in up-and-running companies, the father of three recognizes that it’s important for the business community to back startups, as well.

That provides an incentive for ambitious young people to stay in Southwest Florida, he says.

“We’re an emerging region, and we need young people who are willing to take the leap of faith in business, like I did when I was young,” Cartwright said, adding that he’s often judged local shark-tank-style competitions.

“I believe, deep down, everyone is an entrepreneur,” he said.

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How Angel Investors Boost Their Returns

Sophisticated angel investors don’t finance early stage companies because they love technology, want to help entrepreneurs, to benefit society or any of the other things that the term “angel” might imply. They do it to make money.

For their startup investments to be worthwhile, the returns angels generate have to exceed the returns the investors could earn from investing in other assets — bonds, public equities, commodities, real estate, and so on.

Financial Returns From Angel Investing

The financial returns from angel investing are driven by a combination of five numbers:

  1. The price of the company at the time the investor buys shares.
  2. The probability that the company can be sold or go public.
  3. The price of the company at the time the business is sold to someone else.
  4. The number of times the company will need to raise money.
  5. The time period between buying and selling.

The best way to make a lot of money investing in early stage companies is to buy a company with a high probability of being sold or going public, where the price at the time the company will be sold will be high, where the time period between buying and selling is short, and where the initial price paid is low.

Successful angels boost their financial returns from angel investing by getting these elements right.

1. They Invest at a Low Valuation

The higher the price the investor pays going in, the lower the multiple on the investment at a given sales price. An investor who put money into a company at a $1 million valuation will make 20 times her money on a company that sells for $20 million, while an investor who put money into the same company at a $4 million valuation will make only five times her money. Avoiding over valuation is key part of ensuring high returns.

2. They Invest in Companies That Have a High Probability of Exit

The greater the odds that a company can be sold or go public, the higher the chances that an investor makes a return greater than zero on the investment. Companies in some industries – like computer software and ecommerce — and companies with certain business models have a much higher probability of acquisition or IPO than companies in other industries or with other business models. Focusing on those industries and business models improves investor returns.

3. They Invest in Industries Where Companies are Acquired or Go Public at High Multiples

The higher the ratio of share prices to underlying metrics of business performance, like sales or earnings, the greater the price that investors will tend to get when the company gets sold. Again companies in certain industries and with certain business models have much higher multiples on price. Focusing on those types of businesses improves investor returns.

4. They Invest in Companies That Do Not Need to Raise a lot of Capital Before They Exit

When companies raise money after an investor has put money in, the initial investor’s stake in the company is often diluted down, which reduces their return. Some types of companies, like software as a service businesses, can get to positive cash flow without much investment, while other types of companies, like medical devices, cannot. Focusing on businesses that do not need to raise a lot of capital boosts investor returns.

5. They Invest in Companies That Have Quick Outcomes

The longer it takes to get to an exit of a given value, the lower the investor’s return. Some types of businesses, mobile phone apps for example, either take off quickly or disappear, while other companies, like biotechnology businesses, won’t have an outcome for a decade or more. As long as the size of the returns are equal, concentrating on businesses that have quicker outcomes enhances returns.

Investor Folder Photo via Shutterstock

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Deepak Gupta

Ever since Facebook expanded access to its Messenger service in April 2016, giving businesses the ability to reach customers through APIs, “Chatbot” has become the buzzword in developer communities across the globe.  Here is a short piece on the essentials for investing resources in chatbots that may be helpful to startups and established businesses alike. […]

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