June 13, 2018

This paid piece is sponsored by the Zeal Center for Entrepreneurship.

The five businesses recently accepted into this year’s accelerator program at the Zeal Center for Entrepreneurship have a chance for considerably more investment thanks to Falls Angel Fund.

Founded in 2016, Falls Angel Fund is one of four active angel funds in South Dakota, providing equity funding to high-growth companies.

It recently committed $50,000 to this year’s Zeal Growth Accelerator. Combined with other funding sources, that brings the total potential investment pool to $75,000. Companies will be able to compete for up to $25,000 each.

Matthew Paulson, who chairs the Falls Angel Fund and is a Zeal board member, shared more about how it works and what types of investments it has been making.

First, for people who aren’t familiar with it, what makes a fund like Falls Angel Fund different from other types of venture capital?

Falls Angel Fund is a seed-stage angel investment fund, meaning the checks that we write are often the first outside money that’s invested into a company. Our fund typically invests between $25,000 and $150,000 in a company, depending on their progress and capital needs. Companies that have made substantial progress and need more capital would turn to a venture capital firm that offers growth capital.

Since 2016, give us a sense of the types of companies you’ve invested in. Are there certain qualities you look for?

Falls Angel Fund and FAF Aquatech Investors LLC, a subset of Falls Angel Fund members, have invested a total of $1.75 million into companies in our region. Our portfolio currently includes Equinox, Learn Create Build Academy and Montessorium in Sioux Falls, Prairie AquaTech in Vogla, Bushel and WalkSmart in Fargo, and Fresh Bar in Minneapolis.

We are a sector-agnostic fund, meaning that we are not focused on any specific industry. We primarily invest in companies that are based in South Dakota and surrounding states and have a business model that is capable of scaling nationally. We also take a hard look at a company’s founders to determine whether they have the industry experience, knowledge and work ethic that’s necessary to build a successful business.

Of course, each company is different, but overall how would you assess the way the portfolio is performing?

Falls Angel Fund was started about two years ago and seed-stage funds have a lifespan of about 10 years. Our fund is still in the early innings, but we can get a pretty good idea of how our companies are doing by reading their financials and investor updates. I think the portfolio is doing very well as a whole and there isn’t a “problem child” company in the bunch. We are especially excited about Bushel (Myriad Mobile) out of Fargo. They recently raised $7 million in additional venture capital after raising $1.5 million from an initial group of investors that included Falls Angel Fund in early 2017.

What made Falls Angel Fund want to contribute to this year’s Zeal accelerator? What are you hoping to achieve?

Zeal recently made us aware that they were looking to seek additional seed funding for their accelerator program, and we are very excited about the companies that were accepted this year. We wanted to make capital available to these startups because it will allow us to take an equity position in these companies early on and will give us the opportunity to work directly with entrepreneurs looking to grow businesses and create jobs in Sioux Falls.

What should the accelerator companies – or any young startup – keep in mind as they to secure angel investments?

The biggest thing that entrepreneurs early on need to understand is that angel investors don’t invest in ideas. They invest in growing businesses. If you just have a business plan, haven’t started yet and don’t have any customers, it’s extremely unlikely any angel investor is going to invest in your business. You really need a fleshed-out business plan and have a couple of customers buying from you before angel investors will have a serious conversation with you about investing.

And what about potential investors? Can they participate in Falls Angel Fund, and what should they keep in mind about angel investing?

Falls Angel Fund is a closed-end fund, meaning that we are unable to admit additional investors after the fund’s initial formation. Whenever Falls Angel Fund is fully invested, and we start working on a second angel fund, we could admit additional accredited investors into the second fund at that point. I am always happy to sit down with any accredited investor that wants to get into angel investing, give them the lay of the land and show them different ways they can get involved in angel investing in our community.

Would-be investors should know angel investing is not for the faint of heart. This is a high-risk, high-reward investment opportunity. Your capital is often locked up for years at a time, and the general assumption is that seven out of 10 companies that you are going to invest in will fail. The hope is that one or two companies that you invest in will knock it out of the park, cover your losses and generate a healthy return on investment.

If businesses or investors want to reach Falls Angel Fund or learn more, what should they do?

The best bet is to reach out to Tim Weelborg and Tom Eitreim at the Enterprise Institute, the nonprofit that organizes Falls Angel Fund and other community-based angel funds in South Dakota. They are based at Zeal Center for Entrepreneurship, and their contact information can be found at sdei.org/contact. Any business or investor that wants to reach out to me directly can get in touch with me via email at [email protected].

Zeal announces Growth Accelerator participants