Organized angel groups, such as Oklahoma's SeedStep Angels, offer unique benefits to angel investors — those wealthy individuals who make equity investments in entrepreneurial companies.
Angel groups provide a structured, professional association for like-minded people who have an appetite and the money to invest in entrepreneurial companies.
In other words, organized angels, such as those in SeedStep Angels, enjoy working together to find great deals and achieve above-average financial returns.
So what does it take to become a SeedStep Angels member?
Angel investors must satisfy the Securities and Exchange Commission definition of “accredited investor.” This requires that an individual have a net worth or a joint net worth with a spouse of $1 million (excluding personal residence) or individual income that exceeds $200,000 or joint income with a spouse exceeding $300,000.
Once the accredited investor threshold is met, the individual must be willing and able to invest a portion (often in the 5 to 10 percent range) of his or her total portfolio, knowing that those funds likely won't be accessible for at least five years.
In early-stage investing, losers happen fairly quickly; winners take a while.
On average, about three in 10 deals in this asset class make returns. About three in 10 fail, and the rest fall somewhere in between. A study by the Angel Resource Institute (ARI) of returns on 3,097 angel investments reported that 61 percent had positive returns on their investment while the rest lost money.
A serious angel investor would plan to invest in eight to 10 deals over two to three years.
It's hard to find and adequately assess that many investment opportunities, which is another reason why several dozen Oklahomans have chosen to band together in SeedStep Angels.
As SeedStep Angels becomes the capital focal point for many of the best entrepreneurial deals from all sources in our state, the group evaluates about two-dozen well-screened deals a year.
Oklahoma has a risk appetite, but savvy angel investors know better than to take a seat-of-the-pants approach to investing. Another finding of the ARI study is that angel returns increased more than five times with more due diligence (40 hours versus 20 hours).
Excellent and efficient deal flow. Detailed due diligence. Sharing a common bond with co-investors. These are just some of the reasons angels in Oklahoma City, Tulsa and Ardmore are teaming to make important and better informed investments.
Tom Walker is president and CEO of i2E Inc., a nonprofit corporation that mentors many of the state's technology-based startup companies. i2E receives state appropriations from the Oklahoma Center for the Advancement of Science and Technology. Contact Walker at i2E_Comments@i2E.org.
This is the second in a four-part informational series on angel investing in Oklahoma.