With the formation of an affiliate angel investment group in Kalamazoo, Grand Angels has taken the first step toward possibly creating a handful of similar arrangements statewide.
The Holland-based Grand Angels and several investors in the Kalamazoo area connected to form Ka-Zoo Angels. The affiliate group will use Grand Angels’ administrative structure for deal flow and to conduct due diligence on prospective investments.
If the Kalamazoo affiliate works out, Grand Angels wants to set up other investor groups in Michigan, according to CEO Tim Parker. The angel investment group has not yet identified any specific markets beyond Kalamazoo.
“We are looking at Kalamazoo first. We’re going to make that work and we’ll have, I’m sure, some learning from that,” Parker said. “Once we feel comfortable that everything is functioning just the way that it should, we’ll look at what the next communities would be.
“We’ll probably work our way out of our radius. There are some other groups in the state that are member-led and don’t have a professional staff that maybe could use some of our structure. We’d be happy to talk to anybody that wants to talk about it in different ways.”
Ka-Zoo Angels is the 11th angel investment group in Michigan. According to data from the Michigan Venture Capital Association, angel investment groups last year had a collective 330 members, which compares with seven groups five years earlier that had a combined 185 high-net worth individuals as active members.
The 44-member Grand Angels is one of the oldest and most active angel investment groups in the state. Members of the group in 2016 invested $3.65 million in 12 deals, 10 of which were follow-on investments in existing portfolio companies and two of which were new investments.
This year, Grand Angels has made five investments in startup companies totaling $1.15 million.
Grand Angels focuses its investments on companies in the life sciences, information technology, alternative energy, and advanced manufacturing and materials sectors.
Ka-Zoo Angels will target the same areas, although “over time, I believe, they will develop somewhat on their own as far as the type of deals they’re interested in or the ways to go about it,” Parker said.
“Every community has its own personality and its own interests,” he said. “So we’ve laid out the group in a way that, even though they are part of Grand Angels, they can do some things in their own way, and that’s been the key to making it happen.”
Fourteen investors signed on as founding members of Ka-Zoo Angels, some of whom have co-invested with Grand Angels in the past.
In connecting with Grand Angels, investors at Ka-Zoo Angels saw an easier path to forming an investment group by leveraging the well-established organization and its network and ties with other angel groups across the state.
“It just made sense to use the structure and people that Grand Angels had,” said Eric Brown, a business attorney and of-counsel at the Kalamazoo office of Warner Norcross & Judd LLP who is also a founding member of Ka-Zoo Angels. “They (Grand Angels) have a pretty good track record of experience, and to start an angel group from scratch would be a long process.”
Ka-Zoo Angels is open to additional members, according to Brown. He expects more to join in the near future, especially once the group gains a little experience.
Brown said he knows prospective members who are interested but are not yet ready to join.
“Whenever something like this comes up, it’s always a question of people waiting to see who’s really going to commit,” Brown said. “We have a good group, so I think we’ll be able to get some of the people who are sitting on the fence.”
In seeking to add to their ranks, both Ka-Zoo Angels and Grand Angels are particularly interested in recruiting more younger members such as Matthew Mace, the founder and CEO of Kalamazoo-based data analytics firm BlueGranite Inc.
Mace, who turned 40 this year, has “always just loved business, ideas and talking to entrepreneurs.” In the past, he’s worked with Starting Gate, the student business incubator at Western Michigan University, as well as judged student business plan competitions.
When invited to join Ka-Zoo Angels, he saw it as an opportunity to support startup businesses financially and to offer others his mentorship, professional knowledge and two decades of experience as an entrepreneur.
“I just thought it’d be a fun thing to do. Maybe invest some of the money we’ve earned here over the years at BlueGranite and help other entrepreneurs in the state,” said Mace, who started the company in 1996 as a sophomore at WMU.
“I’ve gotten lots of help over the years. That’s what’s more enticing for me,” he said, noting the support he received from others in his firm’s startup days. “It’s not just about providing some money. It’s about providing some mentorship, serving on a board and helping them make connections.”
Typically in these angel groups, investors have tended to be males who are retired or nearing retirement age, Parker said.
Lately, Grand Angels has been able to recruit younger members, he said. A younger generation of investors brings not only a different perspective to prospective deals but also a better understanding of opportunities that exist today, especially in the technology sector that older investors may not understand as well.
“We need the full demographic in our group. So we’re bringing in more female members and younger members and that next generation that’s going to keep us going for the next 20 years,” said Parker, 49. “With the way technology’s changing, and if you look at advanced manufacturing and advanced agriculture, the life sciences and the software, most of the deep experience is in my generation or the people younger than me.
“The deals are changing because technology’s changing. It’s really great to have the full mix of generations in there. We have the wise sages and we have the young, energetic go-getters. We get a pretty rounded perspective when we’re looking at deals.”
Grand Angels uses its standard membership criteria for investors who want to join the Kalamazoo affiliate: Members must invest a minimum of $25,000 every two years and a minimum of $100,000 over time, Parker said.
In return, the affiliation in Kalamazoo gives Grand Angels more members, greater deal flow and more capital to deploy, plus more expertise on its roster to pursue and vet prospects.
The formation of the affiliate group follows years of what Parker describes as an “ongoing discussion” with Kalamazoo-area investors and Grand Angels. In the last few months, they decided to use an affiliation model that leverages the existing administrative structure of Grand Angels.
“Our goal is to help establish and grow more Michigan businesses and we’ve done that pretty successfully,” Parker said. “We do know that there are groups of people in other communities that have the same interests and the same values that we have, and that’s why we looked to Kalamazoo first. We see things the same way. We want to bring more capital to entrepreneurs who are looking for it.”