A restructuring for Grand Angels in 2021 aims to create understanding about angel investing and greater diversity among investors and their deals.
The Grand Rapids-based angel investing network umbrella organization Michigan Capital Network has transitioned into a nonprofit trade association. Under Michigan Capital Network, led by Interim Executive Director Janet Wylie, Grand Angels and its affiliates in Kalamazoo, Detroit and Flint now work to “educate, grow, and diversify early-stage investors in communities across Michigan.”
A new subsidiary, MCN Ventures, manages Grand Angels’ three venture capital funds and plans to launch a fourth later this year. The venture capital funds maintain a focus on investing primarily in the Great Lakes region.
Paul D’Amato, who’s been with Grand Angels since 2015, leads MCN Ventures as CEO and managing director. Dale Grogan, who joined Grand Angels late last year from Charter Capital Partners, works alongside D’Amato.
The reorganization comes 16 years after Grand Angels formed as a loose-knit group of angel investors in West Michigan. Since then, Grand Angels has grown membership, added the venture capital funds and became a broader, more sophisticated organization that has invested more than $40 million over the years.
The structural changes should better accommodate continued growth and “greater impact and better impact” from investments, said Carl Erickson, chairman of the Michigan Capital Network.
“Any organization as it grows needs to periodically look at its structure and adapt that structure to handle the growth and the new things that it’s been doing,” Erickson said. “We are just a different organization than we were historically. This reorganization takes the successes that we had and the opportunities we see in the future and aligns the organization better to take advantage of that.”
Individual members of the Grand Angels network and its affiliates will now invest in deals through special purpose entities formed specifically for each investment and that MCN Ventures will manage. Michigan Capital Network will “rely on trusted partners” around the state — including Invest Michigan, Invest Detroit, Michigan Rise, and Lean Rocket Lab — to source, vet, conduct due diligence, and negotiate deals, Erickson said. Members can also invest in later-stage deals through MCN Ventures.
Building on experience
Through the new structure, Michigan Capital Network wants to grow to eight affiliated angel groups across the state with 250 members, from about 100 members today. The organization has been talking to potential new affiliate partners in two more markets in Michigan. Additional affiliates could come through partnerships with existing angel groups or the formation of new groups, Erickson said.
Erickson cites one recent estimate showing there were 4 million people in the U.S. who met the federal definition for an accredited investor but only 300,000 are active angels investors.
“In that sense, there’s a whole bunch of people who could be doing this but aren’t, and I think that’s driven by a lack of familiarity and education, which is why we have made education front and center in our purpose,” Erickson said. “If you don’t even know about this or feel confident in it or even know how to invest responsibly and successfully, no way are you going to be doing this.”
Erickson also cites his own experience as an example. The founder of Grand Rapids software developer Atomic Object LLC, Erickson was first introduced to Grand Angels more than a decade ago by a client who had received an investment. At that time, he had done very little early-stage investing.
“That made me aware of the organization. I joined and just learned a ton, sort of informally by just listening to the questions asked (and) by hanging around people who had more experience than me,” he said. “We want to take that dynamic of peer-to-peer learning and we want to complement it with a formal educational curriculum so that every single meeting has an educational presentation.”
Statewide in 2019, 14 angel organizations with 1,322 investors invested individually or through a group, according to the 2020 annual research report by the Michigan Venture Capital Association.
To bring more angels into the fold, Grand Angels created two new member classes. They are emeritus members “who have aged out of early-stage investing” and offer “wisdom, experience, and relationships” to emerging members who are “the future business leaders and accredited investors,” Erickson said.
“They’ll benefit from the connections, mentoring, and education we provide,” he added. “We’re planting seeds for future early-stage investors.”
In planting those seeds, Michigan Capital Network wants to create greater diversity and have more women and people of color become involved in early-stage investing, according to Erickson. Women are underrepresented in angel investing while people of color are “dramatically underrepresented,” he said.
Erickson sees the drive for greater diversity in early-stage investing as a social justice issue.
“If you believe that this asset class of early-stage investments is an important one and can be a potential wealth-building one, then we should have everybody participating and benefitting,” he said. “The more diversity and life experience that we have, the better we all will be as investors and learning from each other. … I have no doubt that a diversity of our membership would help us with better diligence and deal sourcing.”
The most recent annual Angel Funders report from the Angel Capital Association shows that nationally, women and people or color remain underrepresented as CEOs of companies that received an angel investment and “we saw virtually no change from 2018 to 2019.” Despite efforts in recent years for greater diversity in investments, “angel portfolio companies are still overwhelmingly being led by white male CEOs,” according to the Angel Capital Association’s 2020 Angel Funders report.