What does it take to help a “gazelle” grow? High-performance emerging technology companies that some people call gazelles because of their ability to grow by leaps and bounds can have difficulty getting start-up financing.
One year ago, the Mississippi Technology Alliance (MTA) established the Mississippi Angel Network (the Network), a group of accredited investors interested in reviewing fundraising presentations from Mississippi-based technology companies seeking seed and growth capital.
Success has come with SemiSouth Labs in Starkville recently raising $5 million from investors including $2 million from the Network. And ANI Pharmaceuticals in Gulfport has raised $8.5 million with $500,000 from Network members.
Dr. Randy Goldsmith, president of MTA, said that although high-tech startup companies represent a small minority of new businesses created every year, they are the companies that will define the national, state or community’s future economic potential.
“We are talking about future Home Depots of the world, and the future Microsofts of the world, companies that eventually grow into national brands,” Goldsmith said. “It takes certain competencies, skill sets and circumstances to grow those kinds of companies. That breaks down into six components, usually embedded in the community: access to technology, skilled entrepreneurs, access to investment capital, quality workforce, business support and a quality environment.
“Here at MTA, the Angel Network would be one of those elements in the area of capital formation. Actually that is only one of three or four strategies we have for the State of Mississippi. We have other capital raising strategies as well. Some of those are for existing companies in addition to the new company start ups we have been talking about.”
The whole idea is to improve the economy of Mississippi by providing support to companies that create well-paying jobs. Goldsmith said his personal philosophy is high-performance companies create high-performance jobs that make for a competitive community.
These types of companies are not necessarily a risky investment. Goldsmith worked in Oklahoma and Texas before taking the helm at MTA about four months ago. In his previous positions, he assisted more than 100 young companies raise nearly $500 million of investment capital.
“I have never seen a deal that should have gotten funded that didn’t get funded,” Goldsmith said. “The only question is how it got funded. Some projects should have been funded by the local community, but got funded by New York, Miami, Nashville or Silicon Valley. Either there was no local investment infrastructure, andor it wasn’t in the local investor’s comfort zone. They didn’t understand the opportunity.”
There are about 200 Angel Networks across the U.S. which invest an estimated $25 billion per year. On average, the Angel Networks invest in one out of every four qualified deals they review. Goldsmith said the high rate of funding approval and amount of money being invested show that this is a growing phenomenon that it is market driven.
The Network is comprised of accredited individual and institutional investors from inside and outside of the state. Companies typically seek funding ranging from $500,000 to $5 million and represent many technologies such as software, life sciences and communications. Companies seeking funding via the Network must either be headquartered in Mississippi or have substantial operations within the state.
MTA has been successful in attracting 65 angels to the Network.
“I think this is a good beginning, and we hope to attract additional investors as we launch our Center for Enterprise and Innovation (CEI), a new MTA program,” Goldsmith said. “The CEI will offer entrepreneurs in new and early stage companies assistance in understanding the nuances of private equity investment, assessing their entrepreneurial venture, and risk readiness for investment.”
Twenty years ago, venture capital firms’ primary role was providing startup and early-stage companies with their first round of investment capital. As years passed, venture capital firms moved farther away from “seed” capital to less risky later stage investments.
“This void is now filled by angel investors,” Goldsmith said. “Today there are about 250,000 angels nationwide who invest about $25 billion per year in 50,000 deals. This amount of capital is about the same as venture capitals.
However, the venture capitals invest in about 3,000 deals per year.
“Without angel investors, early-stage companies with a great product, large market opportunity and a good business model can die on the vine due to a lack of seed funding in a timely manner. These types of companies, companies that define the future of a local or state economy, are dependent upon private equity seed funding. They are far too risky to qualify for bank financing. In other words, angels are critical to a community and state’s capital market structure.”
Goldsmith said there are multiple ways for angels to get involved with MTA. There are opportunities for angels who want a more active role in helping companies beyond their investment.
“I’ve had experiences where an investor played an interim but key management role in the company until it achieved some successful growth,” he said. “Some investors prefer to participate in a managed fund (i.e. a model that allows investors to invest in a fund with a fund manager that focuses seed stage investments). Others prefer to pool their investment dollars with other angels to form an ‘unmanaged fund,’ and still other investors prefer to invest individually. A variety of models contributes to a healthy investment environment.”
Contact MBJ contributing writer Becky Gillette at email@example.com.