Rainsource Capital, a network of angel funds based in St. Paul, will launch an ambitious effort to more than quintuple its number of affiliated funds over the next five years, MedCity News has learned.
The group will announce Friday morning at its annual Rainmakers Conference a plan to create 100 more funds across the country by 2016. Rainsource operates 23 angel funds in six states, including Minnesota, Iowa, North Dakota, South Dakota, Idaho and Montana.
Funds range from seven to 61 members, pooling their money in a collective pot of $500,000 to $2 million each. Rainsource currently has more than $33 million invested in 55 companies.
Key to the effort is Rainsource’s plan to recruit and train 50 certified “Rainmakers” to establish and support the funds.
David Welliver, president and founder of the WellAdvised LLC consulting firm in St. Paul, will lead the group’s efforts in Minnesota. Welliver, a certified public accountant who served on Gov. Tim Pawlenty’s 21st Century Tax Reform Commission, has been advising local startups on Minnesota’s new $60 million angel investment tax credit program.
In an interview, Welliver said he hopes to create two Minnesota funds within a year.
Establishing new funds won’t be easy. The weak economy has drained the wealth of angel investors, who are holding onto their money, Welliver said.
Angel investments last year totaled $17.6 billion, a decrease of 8.3 percent from 2008, according to the Center for Venture Research at the University of New Hampshire.
Welliver said the angel tax credits should help. But the real test of the program is whether the credits will help create new angel money, he said.
According to the state Department of Employment and Economic Development, Minnesota already has allocated $1.5 million in tax credits since the program launched in July. In that time, investors have put $6 million into 11 companies. But Welliver suspects those deals were close to completion anyway, and would have happened without the credits.
Angel funds must also figure out how to exit their portfolios. Normally, an angel fund would hand off a company to a larger venture capital firm. But VCs have fled that market, experts say.
“We’ve been crushed by VCs,” Richard Sudek, chair of Tech Coast Angels, told investors at the Rainmakers conference.
As a result, angel groups like Tech Coast are looking for deals that will allow them to exit companies in two-to-four years through acquisitions, Sudek said.