For years, the Central Texas Angel Network was among the nation’s most active angel investment groups.
The Austin-based consortium ranked among the five most active angel groups in the country from 2014 to 2019 — and in three of those years, it ranked No. 1. Its portfolio has included 30-plus companies that have been acquired or gone public, including Deep Eddy Vodka, Phunware, ESO Solutions, CSID and Dulce Vida Tequila.
But everything changed in 2021 amid the pandemic's disruption.
"As we went through the pandemic, all the CTAN members scattered, just like every other business and organization, and actually our staff left during that time, too," CTAN's Board Chair Gary Forni said. "So as the pandemic ended, we had all the pieces, all the processes, all the systems and even all the members still together, but we needed to go out and hire new staff, we needed to ramp them on our systems."
That led to a dramatic fall off in the group's startup investing.
After averaging about 18 investments in new portfolio companies per year from 2015 to 2020, CTAN only added three new startups to its portfolio in 2021.
"It was difficult to keep our pipeline of startups who are looking for funding that full," Forni said. "It was difficult to even support the ones who did apply."
In 2022, CTAN backed six new startups, and last year it invested in seven new companies. The group hopes to continue to build that number back up and has been getting significantly more active. It has beefed up its speed-dating office hours, where any startup can come by CTAN's offices in downtown Austin and chat with members and staff about business plans. It has also developed a group for women angel investors, and it's hosting more events.
The uptick has been intentional.
After things had largely fallen apart during the heart of the pandemic, CTAN brought on new staff members, revamped its website to make it easier for startups to apply for funding and developed an expansion program to bolster other angel networks elsewhere in Texas. But the timing is tricky. Venture capital investments in Austin, and nationwide, have fallen off significantly from the peak years of 2021 and 2022.
"From a investment point of view, a number of VCs have not raised another round. So VC capital isn't available," Forni said. "Other forms of capital are not available. And so startups that are continuing to push forward are hungry, they're aggressive, and we're making ourselves more visible so that they can apply to CTAN. And so we're seeing a big uptick in the number of companies that are applying, which gives us kind of that diversity of investment opportunities that we've been trying to get since the pandemic."
CTAN is now ready to make more and larger investments.
Its average check size for early-stage startups is about $500,000, CTAN Executive Director Katie Russel said. The group in 2023 also added a sidecar fund, which allows the group to channel even more money into its most promising startups that make it through CTAN's initial process.
"This year, we're seeing that the funds increased, even drastically compared to 2023," she said. "So now, it's just an additional amount of money on top of that average of $500,000 that we're giving to these founders, so we're seeing a lot of really great deals come through and then more capital that we're able to disperse as our membership increases, which they're both doing simultaneously."
Meanwhile, CTAN just added a startup support package for companies that meet its investment criteria. That includes $450,000 worth of cloud credits and discounts for co-working and other services with the organization's partners. CTAN plans to provide that support package to roughly 400 startups per year.
But, as CTAN expands its reach and rebuilds its pipeline of investments, macro challenges remain. Startup shutdowns and layoffs continue to occur at a faster clip than in prior years. That's also been the case for CTAN's portfolio.
"In 2023 a record high of 14 companies went out of business, bringing the total to 78 portfolio companies in a total of 215 companies or 36% that are no longer in business," CTAN wrote in its 2023 report to members. "There were 3 exit companies in 2023 and one had positive returns for shareholders. A total of 54 companies (25%) have exited. A total of 83 out of 215 portfolio companies are still in business (39%)."
But, as VCs often say, successful startup investing tends to be more about how big your wins are — not how many startups fail.
CTAN’s two largest exit multiples in history happened during its slowest years — 2021 and 2022.
CTAN says it has a 30% internal rate of return, which its says is one of the highest across the country for all angel groups. It also says it has a 4.6x return on cash, which is about double the average for angel groups nationwide, Russel said.
