Tim Keane On Golden Angels Investors’ Funding Philosophy
In Edible-Alpha® podcast #45, Tera interviews Tim Keane, Founder and Director of Golden Angels Investors, a group of angel investors which began in 2002 with the goal of helping capital formation for entrepreneurs in the Midwest. After founding and selling a data analytics company for $25 Million and while leading the Kohler Center at Marquette University, he decided to form what became Golden Angels Investors. The group of individual investors has now grown to more than 100+ investors as well as about 70 Golden Angels Advisors.
The Role of Golden Angels In the Ecosystem
Golden Angels specializes in technology investments across multiple sectors, but invest in a lot of health care and EdTech companies because they have the expertise among their members.
Angel investors tend to invest in things they know, and the members of Golden Angels invested in an agriculture technology venture capital fund called Open Prairie and held an Ag Tech event in Wisconsin in October 2018 to learn more about the sector. Golden Angels tends to invest at an earlier stage of companies (often after friends and family funding) and generally doesn’t invest as much money or as quickly as Venture Capital groups.
Their organization receives about 300 applications per year via the section of their website where entrepreneurs can put in an application for consideration, but only make 4-5 new and 10-15 follow on investments per year. Once Golden Angels committee members review the applications and if there is member interest in the companies, the entrepreneurs are invited to present to the entire membership at a dinner that they have 4-6 times per year. From that dinner, individual members make decisions about investment, but the members make one investment with the company as a group, making the investment process less burdensome on the entrepreneur.
As a group of angel investors, Golden Angels tries to be conveners around shared goals in the entrepreneurial ecosystem, working collaboratively and helping to connect entrepreneurs with the right resources even if their companies will not receive an investment from a member. Their services, in addition to making it easy for entrepreneurs to pitch to multiple individuals, include giving the entrepreneur invaluable feedback about their business. They tend to go deep with a few companies that align with their members and hold companies for an extended period of time.
Facilitating Exits and Raising Money
Golden Angels has made about 85 investments over 17 years. The exits for their investors and companies have involved sales to private equity firms and public companies, but never an IPO. In planning and executing an exit or securing additional financing, the entrepreneur always has help with the sale, but not always from Golden Angels investor unless the Golden Angels function as a lead investor. They have helped companies find bigger investors for larger fundraising rounds.
Golden Angels takes board governance seriously and any member that will serve on a portfolio company’s board has to attend a board training session. In having a board seat, Tim articulates that the board member must make decisions with the company and all of the shareholders in mind, rather than just Golden Angels as an investor. Tera and Tim commented that having a board is pretty much a requirement when seeking significant financing.
Tim’s Advice To Entrepreneurs
Tim recommends that entrepreneurs focus on building their sales and getting as much customer feedback as they can before they risk too much with the business. This, as well as the identification of competitors, helps validate that the business has some traction in the marketplace in the eyes of investors. He advocates taking as little outside money as rationally make sense (without undercapitalizing the business) and on terms that make sense for the next round of investment. He also commented it is easy to get bad advice about raising money, and that overly-complicated terms can hurt securing the financing that is needed.
Investors will also want to assess risk in the full execution of the business idea, interrogating the business model rather than solely the efficacy of the product. Essentially, Tim’s core questions to the entrepreneur are: how will you get paid, and when, and by whom? These questions help the entrepreneur understand the fundamental dynamics of their business and identify any potential cash flow issues.