Desert Angels: An Interview with Curtis Gunn

Tucson’s Desert Angels, an early-stage investor group that provides funds for local startups in the tech sector, received important national recognition last week.  The group was ranked the 3rd most active angel group in the nation by the The Halo Report after having made 32 investments totaling $6.8 million in 2014.

 

The ranking put Tucson group ahead of others in recognized startup hubs like Austin, Seattle, and Boulder   According to the group’s chairman, Curtis Gunn, the Desert Angels have invested nearly $25 million during his five years with the organization.

 

I spoke with Gunn to discuss the future of the Desert Angels and what it takes to become to become a member of Desert Angels or obtain investment from the group.

 

Q: What are the Desert Angel’s plans for 2015? 2014 was by far the busiest year for the Desert Angels. Will this year be even busier?

 

A: There already are 13 investments in the first quarter of the year. Last year the Desert Angel’s had 32 investments, which is such a big number for a group in Tucson. I honestly do not believe that we will rise higher than third on the Halo Report, but it is amazing for an angel group in Tucson to be above relative peers such as Boston, Silicon Valley and New York.

 

Q: The Desert Angels are primarily focused on funding technology companies; do you see expanding to other areas? And what advice would you give to local entrepreneurs who want to become associated with the Desert Angel investors?

 

A: Over the last 5 years 94% of the money has stayed in Arizona with a strong preference towards local companies within Tucson. There is a misconception that the Desert Angels are only technology related. We would review any opportunity as long as it is scalable in a capital efficient manner. Desert Angels are open to all investments but there are requirements before our members will invest. The most important aspect for us is the startup team; we require that the team is professional, courageous and ready for helpful change. It is also a plus for the startup to already gain numbers on the size of the market interested in their product as well as additional social testing to determine market valuation. I would advise that a startup have done these two tasks before contacting the Desert Angels. Also having sales before the process is another additional benefit and if there is not already a prototype you will not make it through. You cannot simply come in with an idea, there has to be a usable product that is already completed. So please establish yourself and your product professionally beforehand.

 

Q: What advice would you give to upcoming investors who are interested in joining the Desert Angels? What are the requirements? What are the benefits of becoming one?

 

A: You must be an accredited investor with a net worth of over a million dollars, not including properties, or an income of over $200,000 a year. Yearly investment is required so please come with the expectation of investing your money. Everyone invests as individuals and we made 32 total investments in 2014. The benefit of an angel group is that you are in a room of investors from a really broad range of corporate experiences; any company that comes to present will have domain expertise from a member who knows that specific market. We can introduce future investors to many people who will help them in the long run from knowledge and past experience.

 

Q: Obviously there is risk when one wants to invest. How do the Desert Angels ensure that investors’ money is used strategically and appropriately? There is a rigorous process of gaining investors from Desert Angels, could you briefly explain the beginning of process?

 

A: The risk will always be there, there is a 50% chance that the company you invest in will fail. But to combat these chances, we have created a way to help investors make decisions within the startup being invested in. Often, investors will take a board position for the startup, which gives them a level of insight into the company and its management. The board is what will review the company’s strategies as well as hiring and spending.

 

A note from the author, Andrew Sorensen:

The Desert Angels process has recently transitioned into a new platform called ProSeeder, which serves as the deal from management platform. The first step is to create your application on ProSeeder, which will then be reviewed by the Desert Angel’s board members. Last year, 2014, the funnel was about 200 applications where 55 were screened and only 17 presented, only 8.5%. So obviously the entry process is very competitive. Like said in the previous question, your best shot at getting investments is by doing your homework and coming in prepared with resources and experience at hand.

 

To submit your business plan to the Desert Angels click here

To apply to become a member of the Desert Angels click here.

To review the Desert Angels portfolio of funded companies click here.

 

 

 

 

Early Stage Investors Converge on Tucson at Southwest Regional Angel Summit

This week Tucson played host to the 5th Annual Southwest Regional Angel Summit.  Organized by Bob Morrison of the Desert Angels and the McGuire Center for Entrepreneurship, the yearly Summit attracts early stage investors from Arizona, California, Utah, and New Mexico as well as from as far away as New York City and Mexico.

Summit organizer Bob Morrison welcomes everyone to the New Venture Expo

Here are some notes from the 2 day event:

  • Day 1: For the first time, an additional day of events were added with a focus on opportunities for investment in and collaboration with Mexico.  Melissa Guz wrote her first article for Startup Tucson News and covered Sunday’s events in some detail.
  • Day 2 kick off:  On Monday morning with a welcome presentations from Sarah Dickey from the Angel Capital Association.  Sarah provided a national update on trends in angel investing.  She made a special note about the success of this event (in it’s 5th year) and recognized the Desert Angels and the leadership of Chairman Curtis Gunn having funded over $6M in across over 20 companies in the last 2 years.  Most all of the funded companies are located in Tucson.
  • Side Cars: Next, Curtis and Jim Goulka of the Arizona Technology Investor Forum discussed “sidecard funds“.  Curtis and the Desert Angels have implemented a sidecar fund here in Tucson.  It allows investors to passively invest in deals by relaying on the collective domain knowledge of the group by taking investments in the sidecar, which in turn invests in certain deals made by members.  This increases engages investors who might not otherwise being investing money due to time limitations or domain expertise and ultimately results in more dollars invested.
  • Tech Transfer: The next session included Nina Ossanna of UA Office of Tech Transfer, Larry Hecker of Hecker and Muehlebach,  and Bob Morrison.  They discussed how discussed how UA OTT works, with a particular focus on supporting UA researchers as they go through the patent and commercialization.  Challenges facing UA commercialization efforts included limited resources resources available to aggressively support the commercialization of UA research.  This issue was further addressed during the lunch session with Dr. Len Jessup, Dean of the UA’s Eller College of Management who is heading UA’s effort to create Tech Launch Arizona.  This is discussed later.
  • Digital World: Chad Lehrman did a special write-up on the session discussing investing in digital, web and mobile app deals.
  • SyndicationBase Horner, Screening Panel Chairman for the Desert Angels and Jim Gouka handled the next session on how different angel groups often use “deal syndication” to partner together, share domain expertise, reduce risk and improve the ability of the groups to provide for  larger investments for portfolio companies. They also discussed the value of Gust (formerly known as AngelSoft), and how it helps with information sharing and due diligence on deals.
  • Tech Launch Arizona: Len Jessup, provided the luncheon keynote and introduced Tech Launch Arizona.  He explained that his past investigation into University technology commercialization processes allowed him to survey the best and worst practices at public research universities like the UA.  Unfortunately, the UA showed up on the “worst” list.  While the UA is among the nations top public universities with nearly $600M per year in research, it has some of the lowest revenues from research commercialization revenues.  The new plan will more closely align the Arizona Center for Innovation, the Office of Technology Transfer, the Office of Corporation Relations and the McGuire Center for Entrepreneurship.  Read more information on TLA here.
  • Angels and VCs: Harry George of Solstice Capital, Tucson’s only Venture Capitalist, discussed the how the VC sector has been shrinking, going from 2500 firms at its peak to only about 500 firms today.  Additionally, fewer firms are doing early stage deals which leaves a significant gap and increases the importance of angel investment.  He also provided 3 pints of advice for entrepreneurs who are raising money:
    • Send out quarterly newsletters to your  investors, share the bad news first. Don’t try to spin it.
    • Create listening culture in your company (in your portfolio companies if you are an investor) so the CEOs learn to take advice effectively.
    • “Get to revenue fast, if not faster” (to paraphrase a quote from Micky Thompson at Post. Bid. Ship, one of Harry’s portfolio companies and an alumnus of the McGuire Center).
  • Potpourri:  This session included a series of short sessions
    • Larry Hecker discussed the JOBS Act which will be signed into law later this week legalizing certain forms of “crowdfunding” for equity deals.  The practice has previously been limited to deals that didn’t involve equity in return for the investment, typically charitable contributions.  He said that there is both good and bad news in the new law, making it easier for companies to raise money and easier to for people to invest in companies, but it comes with lots of concerns about how complicated the process may ultimately be.
    • Chuck Bolotin provided a presentation on how early stage companies are leveraging free resources to save money during tight times. Resource Examples included (1) The Internet, (2) Google and other search engines, (3) Non-vendor content providers, (4) Vendor content providers, (5) The community
    • Emre Toker of Arch Partners, discussed and some of the limitations of Tucson including limited investment capital, imbalance between business school talent and software talent, and too few incubators.  Emre and Joann MacMaster of AZCI then discussed the latest models for both for-profit and non-profit business incubators.
    • Dan Roberts: Provided an update on the efforts of Maverick Angels, a California-based angel group.
  • New Ventures Expo: Finally, the day ended with the McGuire Center’s student teams hosting the New Venture Expo, a rocket pitch and team competition.  The teams created booths and presented their business ideas to angel investor-judges who visited each booth asking critical questions.  See our write-up on the competition for a summary of teams and the contest winners!

Mexico is a land of investment opportunities

The Desert Angels, an Arizona-based non-profit organization of investors, kicked off their fifth annual Southwest Regional Angel Summit Sunday at the University of Arizona (UofA).

Bob Morrison, the organizer of the event and a member of the local Desert Angels investment group, said that this year’s summit differed from past ones because they extended it into two days, with the first exposing angel investors to Mexico’s market, entrepreneurship and innovation.

“(Angel investors) need to understand that (Mexico) is not the land of just tequila and margaritas, but a land of investment opportunities,” Morrison said.

Speaker Giancarlo Ciscomani Freaner led the discussion panel by sharing with the audience one such opportunity: Angel Ventures Mexico (AVM).

According to Freaner, AVM was founded in 2008 in Mexico City and is run by Hernan Fernandez. In general, the company focuses on “providing companies and angel investors with potential looking for capital.”

Giancarlo Ciscomani Freaner (right) interacts with an angel investor on the first day of the Fifth Annual Southwest Regional Angel Summit Sunday. Freaner introduced angel investors from both Mexico and the U.S. to the company, Angel Ventures Mexico. Photo by Melissa Guz

“Angel investing is a critical stage in our development,” Freaner said. “The challenge is getting access to them… the (U.S.) investors interested in spanning into Mexico. We need help opening up the market to Mexico.”

Freaner also said that their major plan is to replicate a model so that Mexicans living in foreign countries can invest in the Mexican/Hispanic innovation.

“Unfortunately, there are minor cultural problems,” he said. “One of these problems (that applies toward investments in general) is that investors don’t like to put money in things with high risk or that they’re uncertain about.”

And in this case, it appears that many investors are worried about the safety and trustworthiness of such companies based in Mexico.

This concern over establishing credibility toward Mexican-based companies ended-up being one of the central driving factors behind the start-up company, enBIDia. It was pitched by Luis R. Soto and Alexandra Garcia, who are two members of the management team, as well as international students attending the UofA’s McGuire Center for Entrepreneurship.

According to Soto, enBIDia is a penny-bidding website similar to the Canada’s beezid.com. However, its aim is to provide trust in both the Mexican market and government.

“There is no friendly penny auction in Mexico because a lot of people don’t trust them,” Soto said. He used the company, por1peso as an example. He said that this auction website has a great deal of discontent to its customers.

“Compared to others, we want to be transparent, friendly, have fast delivery, as well as provide a natural bidding Mexican-based website with an entertaining outlet,” Soto said.

In addition to establishing trust with their customers as the main business risk, Garcia noted that a major financial risk is just being able to raise the sufficient funds for the products they will be auctioning off.

“This is also the result of the lack of industry information in Mexico,” she said.

The panel then transitioned into a company called  CIMATIKA. According to its CEO, Franciska Karsay, CIMATIKA was founded in 2011 by scientists as a technology-transfer project between the UofA and Mexico’s National Board of Science and Technology, or CONACYT. In general, CIMATIKA was designed to highlight Mexico’s innovations by commercializing them to benefit the Mexican people.

And in this case, CIMATIKA highlighted products like their Automated Counting System, which allows the counting of a specific product’s order size and inventory in seconds. In general, it counts things like various stacked materials, such as lumber, metal or paper, Karsay said.

Marcos Garay listens to Freaner's presentation on Angel Ventures Mexico on the first day of the Fifth Annual Southwest Regional Angel Summit Sunday. Garay believes that it is important for angel investors from both the U.S. and Mexico to start understanding where each country comes from when dealing with investments, entrepreneurship and technological innovations. Photo by Melissa Guz

By the end, angel investors like Marcos Garay from New York City appeared to have shown a great interest in the education of Mexican investors about how U.S. investors think, and vise versa.

“There are a lot of good things down there, and a lot of misconceptions (like safety),” Garay said. “The time has come to increase business from one place to another… Our challenge is to bring forth the opportunity of entrepreneurship everywhere.”

Click here to see the agenda for the second day of the summit.

Arizona Tops List of US States – Entrepreneurship.org

Geographically, entrepreneurial activity rates decreased in all U.S. regions except the Northeast, which experienced a slight increase. Rates remain highest in the West and lowest in the Midwest. Arizona had the highest entrepreneurial activity rate, with 520 per 100,000 adults creating businesses each month during 2011. Rounding out the top five highest rates were Texas (440 per 100,000 adults), California (440 per 100,000 adults), Colorado (420 per 100,000 adults) and Alaska, with 410 businesses started per 100,000 adults.

via New Business Startups Declined in 2011 Arizona Tops List of US States – Entrepreneurship.org.

Business Owners Adjusting to Patent System Overhaul – NYTimes.com

Intellectual Property-based entrepreneurs need to understand the significant changes that are occurring to the US Patent system.

 

The most sweeping patent system changes in more than 50 years became law in September with enactment of the America Invents Act, which the White House has said will help turn inventions into businesses faster. Entrepreneurs and small-business owners who rely on the patent system to protect their intellectual property are just starting to understand the changes, which phase in over an 18-month period that ends in March 2013.

via Business Owners Adjusting to Patent System Overhaul – NYTimes.com.