While Minnesota is home to tens of thousands of potential angel investors, that doesn’t mean the state is flush with venture cash.
People like Reed Robinson want to change that. Robinson, a co-founder of startup infrastructure nonprofit Beta.MN, recently announced Groove Capital, a pre-seed investment firm and angel-investing association. Groove will address what Robinson said is a gap in early-stage funding for startups.
Angel investing is limited to accredited investors, or people with a net worth above $1 million or an annual income above $200,000. According to the Census Bureau, there are over 73,000 Minnesotans making at least $200,000 a year, to say nothing of people who have a high net worth without income.
However, using data from the state’s Angel Tax Credit, Robinson estimates there are just 100 active angel investors in the state.
Local startups would benefit from more, Robinson said. Investing in startups can be risky, but that shouldn’t keep investors away from the segment — it just means they should have a plan and do their homework. Robinson recommends an investor make at least 10 investments to be safe.
Casey Allen, a local entrepreneur and angel investor, estimates you need to make at least double that if they want to see a return.
“When investors are investing in really small, really early companies, it might feel a lot like a blindfolded monkey throwing darts. There’s just not a lot to go off to know if that company will succeed. The goal is to approach this as if you will make 20 or 40 bets, and that may not be for everybody,” he said.
To be clear: Allen does want more early-stage money in the ecosystem. But he doesn’t want what he calls “dumb money.”
An inexperienced investor can easily waste their own time and money by making poor investments, but they can also hurt the company they’re investing in. Early investors are expected to bring connections and resources along with cash. Without those things, an investor can be like dead weight to a startup.
A solution for potential angels is to join a network, Robinson said. Groove Capital is working to establish one that would supplement the state’s existing networks like Gopher Angels, or regional networks like Austin Area Angels and Southeast Minnesota Capital Fund.
“The main sell for any angel group is to be around people who are already doing it and learn from what they’ve learned,” Robinson said. With Groove, Robinson will do due diligence on behalf of the network, he said.
Robinson has been giving talks about angel networks with Gopher Angels’ Sara Russick. There’s a growing appetite within the state for investments that are seen as giving back to the local economy, he said.
Minnesota’s angel tax credit will return for 2021 after a planned absence in 2020. The program, which provides a 25% tax credit to investors who support startup companies, will support $40 million in investments next year.
The tax credit is a major part of building excitement for angel investing, Robinson said.
