One firm that is a Triangle company in every sense of the word is 410 Medical.
Its founder and chief medical officer, Mark Piehl, a pediatric critical care physician at WakeMed, works at both Duke University and the UNC-Chapel Hill School of Medicine, where he earned his medical degree.
And the company’s product, LifeFlow, designed to improve life-saving fluid delivery, was developed at N.C. State University.
But local funding isn’t often readily available to Triangle startups like 410 Medical. “This region has kind of ebbed and flowed in terms of the local capital available to these startups,” says Kyle Chenet, CEO of 410 Medical.
But now, angel networks at the four major Triangle universities — Duke, UNC-Chapel Hill, N.C. State and N.C. Central University — are trying to change that.
These networks are using their powerful alumni base to create an investor circle that would assist in financing startups. 410 Medical’s Chenet says the schools have the strength and credibility to attract other entrepreneurs.“It really enhances the region beyond just the absolute value of the finance goal,” he says.
As entrepreneurship becomes a focal point of academia, the strategy to tie alumni wealth with the startup ecosystem and university resources is getting traction among investors.
N.C. State’s angel network boasts 80 investors in its first year. UNC has 110 investors and Duke more than 110. N.C. State’s network has invested $1.58 million in seven companies in the first 10 months and UNC has closed four deals by investing $780,000. In a Licensing Executives Society’s chapter meeting last year, Duke Angel Network’s (DAN) John Glushik noted that the group had invested some $2.3 million in 10 separate deals, and four more were under due diligence. Glushik also noted that only four out of DAN’s 75 angel members live in North Carolina. Duke says it has invested $6.1 million in 16 companies.
Overall, the dollars are still small compared to the billions available in financial and technology source centers such as New York and the Silicon Valley. But organizers say it’s a start.
Networks get started
The angel investment model at universities across the country was first developed at MIT and Stanford (which started its program in 2010 and has helped fund more than 20 startups). In the Triangle, Duke jumped in first when the Duke Angel Network launched in June 2015.
Duke’s success in finding deals and creating an angel investment model for its alumni caught the eyes of entrepreneurship programs at the other universities, including Sexton at N.C. State.
“It’s something we knew we needed to do but we hadn’t really figured out the right way to go about it,” she says.
The Wolfpack Investor Network (WIN) launched in September 2016. Entrepreneurs affiliated with the universities can apply on each of the networks’ respective websites to obtain funding. From there, university-led staff, including MBA students, conduct due diligence on the company and, if it makes it through the vetting, present the company to investors.
In Chapel Hill, the Carolina Angel Network (CAN) was founded around the same time as N.C. State’s and followed the formation of the 2015 launch of the Carolina Research Ventures Fund, designed to help seed-stage companies coming out of UNC that are still developing a product and often don’t have full-time staff.
“We said, ‘You know, we have funding now to get an early stage discovery or technology to the starting line, but we don’t have funding for what are called early-stage companies’ – which usually means they have a fully developed product and are ready to go to market – in some cases they’ve even got customers, and they’ve got a full-time founder,” says Randy Myer, CAN managing director.
UNC estimates it has 70,000 accredited investors in its alumni base, so it’s no surprise that the network has jumped to 110 members in just a year.
An Angel Capital Association report said the average angel network size nationally is 68 members.
At N.C. Central, the Eagle Angel Network (EAN) plans to launch next year, Managing Director Henry McKoy says. With blacks comprising just 1 percent of funded startup founders, McKoy hopes the school can help increase diversity in entrepreneurship.
McKoy says 25 to 30 investors have expressed interest.
“This creation of angel investing via a university is really simply an outgrowth of this idea of a university being the educational ground for the next generation of entrepreneurs,” McKoy adds.
Expanding the base of entrepreneurs
Many universities are working to foster entrepreneurship on campus as part of their curriculum. UNC established its minor for entrepreneurship in 2004 and, in May, the program received a whopping $18 million boost from the Shuford family of Hickory. Siblings Jim, Stephen and Dorothy Shuford are fifth-generation UNC alumni and the family behind Shurtape Technologies, which makes the Duck brand tape.
Alston Gardner, a venture partner at Fulcrum Equity Partners and former faculty member at Kenan-Flager Business School, was on the UNC-Chapel Hill board of trustees during the launch of the entrepreneurship program. Gardner, now a network investor, says the idea of a university-affiliated angel network was once considered too radical.
“We were just coming off of the first tech bubble – people were a little skittish at the time,” he says. “That memory has faded. They see what Stanford and MIT have done, and I think there’s become a culture of entrepreneurship, which I would really credit mostly (former Chancellor) Holden Thorp for starting.”
As more money is invested in entrepreneurship and research at the schools, the number of startups generated has grown.In FY 2012, N.C. State launched just four startup companies compared to 12 in 2015 and 2016.
Those startups are contributing to the state’s economy in a big way. An economic analysis conducted for UNC by Economic Modeling Specialists International determined that the businesses spun out of UNC in 2013 added $1.6 billion in income to the state, or the equivalent of 15,000 jobs.
What’s in it for investors?
Gary Hoke, the chief technology officer of National Agents Alliance in Burlington, first got involved with angel investing a few years ago. As an engineering graduate from N.C. State, he decided to join WIN in December. Not only does having the university conduct the diligence save him “many hours,” but he says the diligence itself is more thorough.
“I definitely feel that with a network like WIN, you can go view the due diligence but also meet the people in person, meet the people who run the company and really buy into that idea. That’s something beyond the other angel networks that I’ve been a participant in,” Hoke says. “Because while intellectual property and ideas and processes are things you’re investing in, it’s ultimately the people who have to execute that mission and vision.”
Angels must have a net worth of more than $1 million, excluding the value of their home, or have earned more than $200,000 annually for the past two years to earn their wings as an SEC-accredited investor and participate in the programs at each of the four schools, in addition to being affiliated with the respective university.
But Gardner says because of the risks associated with angel investing, potential investors should have much more wealth than what the SEC requires.
“If you don’t have a couple million dollars to lose, you shouldn’t be involved in it,” he says. “The chances are half the things you invest in are not going to make it.”
In a typical angel network, though, it’s up to the investors to do the due diligence on a company, often making the process slow given members’ busy lives.
But the universities are turning that model on its head. With full-time staff and the help of the MBA and law students, the diligence process can be as quick as 30 days.
“Angel networks are only as strong as the members that participate in them,” says Joe Sinsheimer, managing director of WIN. “A lot of the groups try to have members do the due diligence work, but that model is limited. … Yes, they can offer their expertise or industry knowledge, but it’s very different from a university program where there’s basically full-time employees who can garner all the intellectual assets of the university and put them behind a diligence effort for a new technology.”
Help at the start
The angel networks can be a boost for the companies as well, who can often spend three months to a year just waiting for an answer from most investment groups.
“From the time that I pitched to the time they closed their due diligence, until the time we got funding was, from a venture perspective a very short period of time,” says Brian Handly, CEO of mobile audience data platform Reveal Mobile, which received an investment of around $200,000 from WIN during its initial round and a follow-up investment of $305,000.“There are times where it could take you months to go through the due diligence process and get funding.”
Members aren’t the only ones with a stake in the companies presenting: each of the schools have their own funds investing in the deals. UNC-Chapel Hill’s and Duke’s funds, both of which started with a $2 million investment, pledge to match each angel investment made by network members, at the discretion of the steering committee. N.C. State’s Seed Capital Endowment Fund, which started with an initial $600,000, co-invests in deals with at least three members investing a combined $50,000 or more.
Some of the participants are new to angel investment. Sexton says it offers older alumni from the “traditional economy” a low-barrier entry into an alternative investment class. The networks at UNC and N.C. State cost $1,500 per year, and Duke’s $1,000 per year, and don’t require the $50,000 to $100,000 capital commitment required of many other groups. Investors can pick and choose which of the companies to invest in.
For Sims Preston, a graduate of the Duke School of Law who has served as associate general counsel for QuintilesIMS, CAN was his first exposure to angel investment. While he had looked at several other companies prior to joining CAN and eventually WIN as well, he wanted the reassurance of an investment group.
“One of the things that really struck me was that just as an individual walking into a potential investment, it’s just so daunting,” Preston says. “Without an organization like this I’m not sure I would have invested in anything.”
Ultimately, Sexton says alumni are excited to see tangible products resulting from N.C. State’s growing research arm.
“N.C. State is a very different university today than it was when many of our members were students on campus, and they really haven’t really been back here except to attend a football or basketball game,” Sexton says. “To see young entrepreneurs who are coming out of university and are tackling big problems using advanced technology — they want to be a part of that.”
Source: Cover Story: Local universities go full-steam searching for investments – Triangle Business Journal