This article first appeared in the St. Louis Beacon, Sept. 7, 2012 - Two St. Louis area angel investor groups have banded together in a bid to increase deal flow capacity in the region.
The FinServe Tech Angels, a group of 11 investors founded earlier this year to specialize in the financial services technology sector, have announced they will combine with the St. Louis Arch Angels, which focuses on life sciences and technology. The addition will put the Arch Angels at 64 investors.
“We think collectively we will be a stronger organization and ultimately appealing to more individuals who are interested in investing in these companies,” said Kyle Welborn, founder of FinServe. "(We can provide) the current members of both groups access to additional investment opportunities and more capital to ultimately get these companies further down the road.”
The partnership is an attempt to answer needs for investors in both organizations. FinServe’s angels will now gain additional prominence through the larger and more well-established Arch Angels, which has invested some $27 million in 31 companies since its inception in 2005. Meanwhile, the Arch Angels will find better access to a niche market of financial services software and technology which had been FinServe’s province.
“We’re going to get to see deals we haven’t seen,” said Gil Bickel, chair of the Arch Angels.
Bickel also feels that they will get to see them much faster. FinServe’s Welborn will head up due diligence for the group and bring with him a team of MBA students from Washington University to help put together packages on companies for members. Bickel hopes this will bring the time it takes to process investments from two to three months down to 45 days.
“Kyle is also going to assist with acquiring new members,” Bickel said. “Basically it’s been my job ,and I work really hard at it. The problem is I can’t spend all day at it. Having help is going to be extremely good.”
It’s part of Bickel’s ongoing effort to shepherd his group to the elusive 100-investor mark -- a goal for some months now. He calls it a chicken-and-egg problem.
“The chicken is that you have money out in the community and the egg is that someone has an idea,” Bickel said. “The problem is the chicken is very little, meaning there’s not enough money in the community and there are too many eggs. That’s where we are right now. We have so many entrepreneurs with advanced ideas and products that they are coming to us and we don’t have enough money to finance them all.”
Angels often view their efforts as part of a diversification strategy, but that means only a limited percentage of the portfolio can go to higher-risk startups. Bickel said it’s all too common to see investors at meetings forced to choose between two different but equally compelling opportunities where only one can get the cash.
“The other one dies or doesn’t get financed by us,” he said. “My goal, which I announced back in April, was to double the size of the membership to get to 100 people. That’s what we need to have enough money to go around. Right now, money is being rationed.”
Welborn said he thinks that objective is doable.
“Based on the size of the St. Louis metropolitan region and general IRS data about tax returns, the region has approximately 50,000-55,000 accredited investors,” said the 27-year-old Kirkwood native. “We think identifying 100 of those individuals who want to actively build a portfolio of startup companies as a way to further diversify their own investments is an achievable goal. There are lots of people who can take advantage of the potential returns of these companies.”
He said he’s enthused about the new arrangement.
“The typical angel group [nationally] will invest in four to six companies a year and has about 35 members. We are really two organizations that are focused on very similar goals. We could combine administrative expenses, allow individuals to get access to both organizations to add additional value to being a member and bring more capital to bear to startups across the region,” Welborn said.
Bickel said he didn’t know how common it was for angel groups to join nationwide though he hadn’t heard of any others taking such an action. He believes that the move will benefit not just investors but also those looking for money.
“There will be a bigger group of angels looking at each of the deals we bring forth before the monthly meeting so there will be more eyes looking at a potential project, and obviously they may have an interest in investing,” he said.
Both are optimistic about the future. Welborn said things are looking up across the region.
“We’re seeing some of the best deal flow that we’ve seen in a long time here in St. Louis,” he said.
Bickel agreed noting he feels far more positive about the area’s financial climate than he did a year ago. With all of the different groups coming together from Arch Grants to ITEN, he called the next six to 12 months an exciting “breakout time” for St. Louis’s entrepreneurial community.
Partnership and working together is a key part of the equation.
“We’re going to do everything we can but the Arch Angels is only a spoke in the wheel,” he said. “We’re not the wheel.”