Baton Rouge-based fundraising platform Anedot’s recent deal with a Dallas-based angel fund — equity for expertise — marked a rare instance of a Louisiana startup drawing out-of-state backing.
But it’s the kind of thing business leaders believe could eventually become more common as the area, and Louisiana, build a rep for investment opportunities.
“What makes that more likely to happen is what’s been developing in Baton Rouge in the last six months and in Louisiana the last 18 months — more interconnected angel networks,” said Baton Rouge Area Chamber CEO Adam Knapp. “The early-stage capital pools, while still a challenge, are getting slightly better to tap into.”
Angel investors back small startups or entrepreneurs. Louisiana is home to a handful of the groups. New Orleans’ NO/LA Angel network is the largest in the state, and one of the largest in the country, with about 120 members. Twelve of those members are from Baton Rouge.
Byron Clayton, CEO of the Louisiana Technology Park on Florida Boulevard, said Baton Rouge started putting together its angel investor group in the fall and quickly got to 12 members.
The goal is to get enough members to create a stand-alone network, he said. Angel networks grow in a unique fashion, as members invite others to join.
The Baton Rouge group hasn’t made a big push yet but expects to do so this year, Clayton said. He doesn’t expect the local group to reach NO/LA’s size but believes it can get close.
Most of the people who get involved in networks have experience in angel investing by themselves, he said. Being part of a group allows the investors to lean on other members’ expertise and experience and be exposed to different ideas and concepts.
“So, it’s actually much better to get involved with the group than to go it on your own,” Clayton said.
There are also angel groups in Lake Charles, a fund in Shreveport and efforts to organize networks in Lafayette and Monroe.
Knapp credited NO/LA and its chairman, Mike Eckert, for working with Baton Rouge and other metro areas to either help establish angel networks or connect them.
In NO/LA, Eckert helped create a volunteer-led effort that vets and “polishes” startups, bringing in mentors who help the entrepreneurs work through business issues and improve the quality of their offerings.
“When that happens … the deals get better, and they have a much better chance of success,” Knapp said. “That polishing by local risk-takers, local investors, helps make a lot of these deals more nationally scalable and nationally attractive to investors.”
Anedot didn’t need polishing, but it did want the resources that Silicon Valley Growth Syndicate could offer, in particular the insight of member Will Bunker, according to Anedot CEO Paul Dietzel II.
Among other things, Bunker co-founded One-and-Only.com, a dating site that became Match.com, and vChatter, the largest video chat service on Facebook.
Anedot doesn’t disclose financial information, Dietzel said. But the new capital, from existing investors and SVGS, will help his fundraising firm expand and increase its share of three target markets: politics, education and religion.
L.W. McNutt, one of SVGS’s founders, said the fund invests anywhere from $50,000 to $355,000 in its portfolio companies in exchange for 2 percent to 5 percent of the equity.
“This is an investing world with a great number of dead soldiers. It’s not for the faint-hearted,” McNutt said. “We anticipate 25 percent to 30 percent of the companies in which we’ve invested will become dead soldiers, but the winners pay off handsomely.”
Most exit at a value of $20 million to $30 million, 18-24 months after they complete their Series A funding, he said. The founders of the startups make about 100 times their original investment, while SVGS members exit with 20 to 30 times theirs.
Series A is the first round of financing after seed capital, the initial money used to start a business. Series A is generally the first time equity is made available to outside investors.
McNutt said Anedot is SVGS’s 60th investment since 2013, when the fund began operating, and its first in Louisiana. Originally, the fund invested only in Silicon Valley startups. But the price for California tech firms grew “frothy,” and the fund began looking hard at other areas. McNutt made a number of trips to Louisiana, joined NO/LA and that led to Anedot. Now, he said, the fund is sold on Louisiana and its great startup community.
Still, the number of Louisiana startups that have drawn outside money and/or partnerships remains limited. Those firms include:
Baton Rouge-based CellControl, whose technology prevents drivers from using their mobile devices.
New Orleans-based MobileQubes, whose kiosks allow consumers to rent or buy battery-charging packs for their mobile devices.
SVGS’s investment in Anedot is more the exception than the rule, Eckert said, and that is unlikely to change in the short term.
It may be different in a year or two after the state further develops the ecosystem that links entrepreneurs to “enablers” — business incubators and accelerators, university programs, pitch competitions and capital, Eckert said. Ideally, the state and metro areas will help foster a number of successful startups, and in-state venture funds will form to help the entrepreneurs with the next layer of funding.
Angels usually hang in through two or three rounds of financing, Eckert said. After that, startups seek investment from venture capitalists.
Right now, the state has very few venture capital funds, and out-of-state venture funds frequently make relocation a requirement for financing, Eckert said. The result is that the startup that the angels, incubators and accelerators and universities helped nurture goes to another state to flourish.
NO/LA and its partners want to keep the Louisiana startups in Louisiana, where they can create jobs and boost economic development, he said.