The episode is divided into three parts. We will talk with Caitlin about:
The differences between TCA's chapters and compare them;
Caitlin's personal investing experience (and also MooDoos Investments);
Foundations (what is it and why you may need it).
Tech Coast Angels in San Diego Chapter vs. other chapters
There are five chapters:
- San Diego;
- Los Angeles;
- Orange County;
- Central Coast, Santa Barbara area;
- Inland Empire (Riverside & Redlands);
In Caitlin's opinion, geography influences a lot. San Diego leans towards life sciences. The membership has a core competency in life sciences because of the ecosystem of companies that are based there.
The main difference between San Diego, LA, and Orange County is that LA and Orange County have a stronger appetite for B2C companies. Whereas for some reason, San Diego just doesn't have the same appetite for B2C (across industries, not a specific sector).
These B2C companies don't have as much success and interest in San Diego.
The main reason we can find is in the first point - geography. Whereas in LA, Industry leans towards advertising technology, consumer apps, consumer products in general. San Diego does a lot of syndication with the other chapters.
San Diego is the largest chapter (over 200 members now). OC and LA (about a 100). Because of this, San Diego has had a lot of influence over the TCA network.
Fund differences: Although all SD, OC, and LA have chapter-specific annual funds, LA and OC launched this year, whereas SD launched last year. Caitlin noted that both the LA and OC funds operate similar to San Diego’s fund.
What is more important is that each of the chapter ACE funds (annual funds) are non- traditional funds. There is no central investment committee; the funds are "democratized"; any member who buys a unit in the annual fund has voting power. The members vote together in the investment decision.
What does that mean for the founders?
If the company can inspire at least four members of the fund to be interested in investment, they can then make an investment recommendation to the other fund members. The proposal will then go to a vote with the entire fund membership. This fund structure simplifies access to capital for companies.
MooDoos Investments and Caitlin's personal experience as an investor
MooDoos Investments is a private family fund that was started about 30 years ago by Caitlin's father. Caitlin has been a passive partner most of her life (since she was nine years old) but joined it as a full-time partner about five years ago.
Small FAQ about MooDoos Investments:
We mentioned that the fund was set up about 30 years ago. Caitlin's father was an executive in the office furniture world for many years, and he wanted to start something new. He enjoyed building businesses, working with entrepreneurs, and coaching, inspiring him to set up a fund. This move was unique because 30 years ago, the term «angel investor» did not exist. What he was doing then would now be described as a venture studio model, but he was using his own money for a startup- Caitlin's father was one of the pioneers in this field. Venture studios were officially invented in 1996.
Since the fund was started, about 80 direct investments have been made (including follow-on investments).
Typically MooDoos invests in pre-seed and seed-stage companies. However recently some series B investments have been made;
The MooDoos team likes to be involved in the company for example, in a board seat or operational participation;
They are industry agnostic, which means investing across the spectrum of industry. Still, they are heavily weighted in life sciences, which has to do with some legacy companies, and because Caitlin's father and sister have a science background. Caitlin also lives in San Diego, which is a well-known life sciences sector.
However, MooDoos Investments has invested in everything from textile manufacturing to sustainable aquaculture.
«I mean, you name it, we've probably invested in it.»
Family funds investing in startups:
Caitlin tells about the evolution that has happened on this issue. Previously it was not typical for a family fund to invest directly in startups. There are barriers; there is a skill set needed, and a family member or staff member should have the necessary core competency to make direct startup investments.
Recently, some alternative investments that family offices were investing in were not performing as well as they had in the past, so there was a real interest in making direct investments rather than just going through VC funds. That is why we see many more family funds and family managed funds making direct investments into startups.
How can founders reach out to family funds?
«The first thing I always say is if you've met one family office, you haven't met all family offices; you've met only one family office.»
Every family is set up differently and has a different structure. However, there are some common ways to get in touch with the family office:
Through introduction (you need need to be active and develop your network);
Through angel groups (a lot of family offices belong to angel groups like TCA for example);
Caitlin can also recommend some investor groups from the East Coast (for those listeners who are in New York or Boston for example):
Launchpad venture group (https://www.launchpadventuregroup.com)
They have some super angels investing may be as long as Caitlin's father, all of whom have industry knowledge. They're all in the same spirit as the San Diego chapter of TCA, a lot of them have been entrepreneurs themselves, and they're willing to roll up their sleeves, help and add value in addition to capital
Maine angels (https://www.maineangels.org);
Golden seeds (https://goldenseeds.com);
They mostly focus on supporting female founders.
Also, there is one more valuable resource which can help you in finding an investor:
Most angel groups are connected to a trade association called the Angel Capital Association. This group is a network of angel groups and super angels.
The Wege Foundation ( wegefoundation.com ) is a separate entity from MooDoos Investments and is a charitable foundation. Whereas MooDoos is a limited partnership that was formed specifically to make direct investments into for-profit entities. The Wege Foundation was started by Caitlin's grandfather 50 years ago. The Wege Foundation is environmentally focused and does most of its granting in West Michigan, where the original family company is still located.
How do foundations work?
The first rule to remember is the same as with family funds: all foundations are different! However, to make investments into for-profit entities, charitable foundations can use:
Program-related investments (PRI). PRIs are a critical tool to stimulate private sector innovation. These innovations can be green and clean technologies or, for example, lifesaving diagnostics and drug development. These examples might encompass the greater mission of the foundation, like saving lives or restoring our environment, aligning with what the foundation has already set out to accomplish.
In other words, PRI is something comparable to grant money given by the foundation to support a charitable activity, except made to a for-profit entity.
What is so important about PRI?
Charitable foundations for tax purposes are not allowed to use program funds for investment purposes, but PRI is an exception. If it is possible to prove that this investment aligns with your programming, then it can be made. It is also essential to know that by making a PRI, the foundation does not expect to get this money back - although it is similar to an investment that a family offices and VCs make.
You can find more about PRI at https://grantspace.org/resources/knowledge-base/pris/.
And finally, we move on to our regular question about three steps which every starting founder should take to succeed by Caitlin Wege:
Get a second meeting (which is the goal for any entrepreneur)
If you want a second meeting, you can do this by doing your homework.
Doing your homework means figuring out who your potential investors are, what does the investor landscape look like? Who invests in your space? Your company's stage? The better you can align yourself with an investor that already invests in your space, the better the outcome.
«If you just meet with anybody without getting second meetings, you're wasting critical time.»
The best time to talk to an investor is when you're not raising money. If you're able to get some time with that investor and you're yet not ready to fundraise, then you should try to do some «preparations»: ask them if they seem interested or if you can add them to your monthly update. And then, when you are ready to fundraise, they will probably already be aware of your idea and be willing to support you.
«If you ask for money, you'll get advice. If you ask for advice, you'll get money.»
- Get a habit of doing monthly updates: It is essential to send your potential investors regular updates, hopefully they are reading it or maybe skimming it or just seeing it in their inbox. By the time you're ready for investment, the conversation will be much easier because they already have a history with you. They see your name; they know the company name; they get an idea of where the company is heading from your updates, which means you're on their radar. Do this monthly, and you'll see great results!
The article is written by Elizaveta Belinskaya for Fundraising Radio Premium and with the support of Openland.
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