Investor members: 26
Total applications: 170
Investments so far: $650,000
After David and Sara Russick negotiated the sale of their Minneapolis-based startup Bagster to trash giant Waste Management Corporation in 2009 and 2010, they weren’t sure what they wanted to do next, but they knew it had to involve building businesses. Around the same time, the couple was invited to join the Thunderbird Angel Network, a recently formed group of alumni, students, and friends of the Thunderbird School of Global Management in Arizona who come together to research and invest in early-stage companies.
Unable to find a like-minded network in the Twin Cities, the Russicks set out to create their own. After taking a few months to set up a structure, they began to recruit members in January 2012 and held the first meeting of Gopher Angels last March.
Angel networks differ from angel funds, acting as a medium through which investors can pool their knowledge, background, and research on possible deals. Eligible companies apply to make formal presentations to the group. With enough interest, members will work to develop due diligence and potentially even deal terms. When it comes time to make a deal, members make individual investment decisions, but can also invest in concert.
Membership in Gopher Angels, which meets bimonthly, is invitation-only; members must be accredited investors as defined by the SEC and must commit to investing at least $50,000 over a two-year period. All members are expected to participate in screening applications from startups. The $950 annual membership fee covers the cost of two first-year MBA interns from the Carlson School of Management at the University of Minnesota; sponsorships such as the CleanTech Open and Minnesota Cup; Gust, an online angel management portal; and meetings. David and Sara Russick volunteer their time.
As of January, 170 startups had applied for the chance to make formal presentations to Gopher Angels, and 23 were selected, resulting in five deals and $650,000 invested.
Angel investing is gaining momentum in Minnesota, in part thanks to the Angel Tax Credit, passed and implemented in 2010. In 2011, 113 businesses received investments from 563 SEC-accredited investors, up from 67 in 2010. In 2012, the program ran out of the $12 million in allotted tax credits early due to the strong response, according to the Minnesota Department of Employment and Economic Development.
Bruce Hagberg, CEO of St. Cloud-based riteSOFT, recalls meeting with a potential angel investor in July, only to have the deal fall through as the credits ran out that same day. New to angel investing, Hagberg, whose company develops data collection software for manufacturing companies, got in touch with the Gopher Angels shortly after the group’s inception. “When I first reached out to David, he was able to compile a group of people knowledgeable in both software and manufacturing,” Hagberg notes. So far, two Gopher Angels members have invested in riteSOFT.
For the Russicks, the creation of an environment that is respectful of and committed to entrepreneurs is as important as investor freedom. Even if a company doesn’t receive funding, the group will try to steer applicants toward more resources. “We try to link [companies] to the community investment ladder—instead of reaching a certain stage and having them look elsewhere, we’d like to streamline the process, bringing in other investment types to strengthen each stage of funding,” David Russick says.
Gopher Angels include both veteran investors and newcomers, by design. “The issue is providing a formalized structure for [first-time investors] to gain access to deals, for them to find like-minded investors to support and invest with,” Sara Russick says. “By including people outside of the established investment community, the entire ecosystem grows.”
Keith Fossen, a first-time angel investor, credits his Gopher Angels experience with motivating him to pursue business development on the local level, including growing the start-up community in Red Wing. Fossen, president & CEO of Red Wing-based Amke, LLC, which specializes in developing educational technology for businesses, says, “I’ve been able to spend time with companies, even if I didn’t invest in them, go through financials, and help them out.”
Joy Lindsay, president of Minneapolis-based StarTec Investments, is a veteran investor who serves on the group’s board of advisors. When she started her venture firm in 1998, “it would have been great to have Gopher Angels,” she says. “It’s a format that allows for independence yet shared due diligence, and gaining from the knowledge of others is something I would have appreciated back then.”
For the Russicks, who still own and license the mini-dumpster rental business TUBS, Inc., the transition from entrepreneurs to investors is only natural. “We’ve gotten a lot from the community; it’s easy to forget that and walk away,” says David Russick. “We want to take the time to turn around—there’s a lot of business out there, and we want to be a part of it.”
This article is reprinted in partnership with Twin Cities Business.