Rumors of a Triangle university-organized “super angel network” are officially true.
March 1, 2016
Triangle Venture Alliance Pools Alumni From Four Major Universities to Invest in Startups
New regional "super angel network" gets federal funding to connect Duke, NC State, UNC and NCCU alumni investors with university-affiliated startup companies
Duke University is out with a press release today announcing the creation of the Triangle Venture Alliance, a partnership between Duke, the University of North Carolina, NC State University and North Carolina Central University to build a network of alumni angel groups to invest in startup companies founded by alumni, parents, staff, faculty and students affiliated with the colleges.
Making it all happen is a $250,000 grant from the U.S. Economic Development Administration and lessons learned as Duke University launched and built its own alumni angel network over the last year. The Duke Angel Network is the model for the alliance.
A university-oriented angel network is not new, but it is unique to have four universities working together in such a way. The universities estimate they have a collective 200,000 alumni who qualify as accredited investors. Even if half a percent of that group gets involved, there will be 1,000 angel investors pumping money into companies affiliated with our region’s largest institutions.
“This can be a game changer for the region,” Duke Vice Provost and Director of Innovation & Entrepreneurship Eric Toone told me during an interview late last year.
If Duke’s track record means anything for the future of the alliance, Triangle companies are likely to reap big benefits from the new group.
Of its first seven investments, the Duke Angel Network has funded at least three companies based in the region or with an office and employees here. Four deals that have been announced so far include SoloPro, Baebies and Testive in Durham and Vertera Spine of Atlanta.
Today’s news is a big deal for companies who will eventually be funded and the investors who may profit from their success. But it’s also a testament to a region that has learned to collaborate and work together since the start of Research Triangle Park in the 1950s, and even moreso in the half decade since the Blackstone Entrepreneurs Network was created.
In a news release, Blackstone Charitable Foundation head Amy Stursberg says, “The TVA will compliment our program by providing an important source of capital to the next high-growth businesses in the region.”
Funded by a $3.63 million grant from the foundation in 2011, the network linking the four universities has matched experienced investors and entrepreneurs with the founders of 86 companies, which have gone on to raise $66 million collectively (as of July 2015). The alliance is explained as an extension of those efforts.
I met with Toone late last year to learn more about the Duke Angel Network and Innovation Fund. He describes the two funding mechanisms as another way that the Innovation & Entrepreneurship initiative at Duke is helping “the ideas that grow at Duke turn into real things and real action” in the world and in people’s lives.
“Everything we do is animated by that ethos,” he says. “What we’re trying to do is build an ecosystem that enables that to happen. And that is across Duke, across the Triangle, across the state.”
A key thing that sets the angel network apart is its placement within the university, Toone says. For example, alumni from Texas A&M University (Aggie Angel Network) and the University of Notre Dame (IrishAngels) have angel networks, but they operate totally independently from the university.
According to Toone, universities have traditionally avoided any arrangement that could make them be perceived as fiduciary.
“We’re very careful. We don’t make any investment decisions. We don’t give any investment advice or make recommendations,” he says.
Duke launched its network in June 2015, with efforts led by former Intersouth Partners VC John Glushik, Toone and Duke alum and serial entrepreneur Kip Frey. The network gives students the opportunity to perform due diligence on deals and allows alumni and others affiliated with the universities to both seek funding for their companies or invest in other promising companies founded by Dukies. The Innovation Fund, also created last year, then invests in the companies selected by the angels, multiplying their impact. Both organizations are overseen by Glushik.
Conversations with the other universities began last summer, says Kelly Sexton, director of NC State’s Office of Technology Transfer. Leaders at the university were immediately interested because conversations about creating an alumni angel network have been ongoing. Duke offered an opportunity to put a workable model behind it.
Sexton says about $60,000 of the federal grant goes to each university. NC State is working to put together additional funds to hire a managing director for what it’s calling the Wolfpack Investor Network. The network will be overseen by a steering team of leaders from the Office of Technology Transfer, Entrepreneurship Initiative, Poole College of Management, Kenan Institute at NC State and the office of general counsel.
“I think the momentum of the four universities doing this together has made it really approachable for the first time,” Sexton says. “And the model that Duke has developed is really workable within the university structure (…) we become a convener and facilitator providing a mechanism for funding but investors are still voting with their own checkbooks.”
Here’s the formula in play at Duke, where more than 60 angels have gotten involved in the network’s first six months and the goal is to fund a company a month.
Companies can apply at any time—the only requirement is that they have a founder, C-level executive or significant investor that is a Duke faculty member, alum, staff member, student or parent.
The Duke team vets the applications to ensure they meet the requirements and then puts the companies’ profiles on a website that only angels can see. Angels select the companies they are interested in learning more about, and if several others are also interested in a deal, a due diligence process begins.
Angels compile a list of questions they’d like answered and issues they’d like explored and a team of Duke law, business and graduate interns are assembled to do the research. Up to eight students are working as interns at any given time. Though they aren’t paid (some get class credit), Toone says they “are lined up from here to Sunday to do this.”
They publish a diligence report of anywhere from 30 to 100 pages, answering all of the questions but without making recommendation. That’s important, because operating as a network means angels have to make their own decision to invest without any influence.
If the angels decide they’d like to meet the company, the network will organize a live pitch that is also webcast so all members can participate. Members then have up to a week to make a decision to invest, and to determine how much.
There is no minimum investment so far, but the range for the first seven deals has been $10,000 to $100,000 invested per person, with an average deal size of $200,000 for the first five deals. Toone’s goal is for the angels to fund deals ranging in size from $300,000 to $3 million once the network is large enough. It’ll fill a gap between friends and family funding and institutional capital. He expects subgroups to form over time, so investors might organize around interests in FinTech, medical technology or supporting female entrepreneurs.
What sweetens the deal at Duke is the opportunity for angel network investments to be matched by the Duke Innovation Fund, a philanthropic fund seeded with tax-deductible donations to the university. The Innovation Fund invests alongside the angels under the same terms, typically providing $1 for every $4 invested by the angels.
So, for example, when a company raises $200,000 from the Duke Angel Network, it’s likely to get $50,000 from the fund. Toone likes the model because it makes it easier for companies raising money and, because it’s charitable, any proceeds from an exit go back into the fund for making future investments in Duke-affiliated companies. It also keeps Duke’s staff out of the deals by letting the angels decide what companies to fund.
“They have to really believe because they have to get a checkbook out to write a check,” he says.
Duke put an initial $2 million into the fund and the goal is to eventually close it at $20 million.
“We’re not trying to make money but to build a successful platform that attracts investment capital to these opportunities,” Toone told me.
The Duke angels come from all over the world, with the most hailing from New York, San Francisco and the Triangle area. The network has grown through word of mouth and visits by Toone to Atlanta, Dallas, New York and other Duke alumni events. He says the sell hasn’t been a hard one. Angels pay just $1,000 to join the network. The deal flow then speaks for itself—Toone says the quality of companies has been “astonishing.”
A news release says that the universities will share back office and due diligence support. Toone also shared with me that each group will have access to ProSeeder, the technology platform that Duke uses to organize investors and vet and collaborate on deals. Due diligence will happen will happen on each campus, with the potential of sharing resources. NC State anticipates that UNC or Duke might benefit from having its STEM majors consult on various deals, and vice versa for those respective universities’ strengths. The groups may even invest together at times.
More details will surely emerge about the operations of each network. At Duke, an operating and advisory team oversee it. NC State will have a similar structure. Leaders there are also exploring the creation of a fund, similar to the Innovation Fund. But the angel network will proceed regardless of it.
Sexton says a kickoff meeting will happen sometime this spring, but NC State is confident it will be able to launch with at least 30 investors, and the help and structure from Duke will let deal-making happen quickly.
“We know we have a lot of alumni who are experienced entrepreneurs and investors and they are passionate about NC State,” she says. “What we are really hoping to get out of this is to harness the enthusiasm, resources and experience of our alumni network to support our startup companies.”