How the East Valley wants to grow angel investors to help startups

Kelsey Mo
The Republic | azcentral.com
Drew Vranjes (left) and Ryan Sorrells (Hacienda Healthcare) work on a laser cutter on Aug. 23, 2017, in the Innovations Center TechShop, 249 E. Chicago St., Chandler.

The East Valley is courting angel investors to provide financial boosts to tech startups.

The PHX East Valley Angel Investor Initiative hopes to engage 250 new angels in three years through a series of six workshops that begin Oct. 4.

An angel investor is a person who invests money in startup companies. Sometimes, angels also help mentor entrepreneurs, lending support beyond funds.

These angel investors can help tech startups grow and create local jobs.

And tech jobs often pay well, said Micah Miranda, economic-development director for Chandler. 

He said nurturing companies that carry a high economic return benefits everyone: "It supports our schools, we have better roads, we have better public safety."

Miranda, along with James Goulka, managing director of an angel investment group called Arizona Tech Investors; John Lewis, president and CEO of the East Valley Partnership; and Michael Winer, a Chandler economic-development specialist, talked with The Arizona Republic about the new initiative.

Here is a summary of their responses.

QUESTION: What qualifications does a person need to be an angel investor?

ANSWER: We're looking for someone in the East Valley area who has probably done well financially and wants to help the local community by risking his or her money to invest in a local startup. 

An angel investor must be an "accredited investor," which the U.S. Securities and Exchange Commission defines as someone who has a net worth of $1 million, has an annual income of $200,000 or a family income of $300,000.

It is risky to invest in tech startups. The numbers are set so that if a company fails and an investor loses all the money, he or she could absorb the loss.   

Q: How do you become an angel investor?

A: Being an accredited investor is a state of being. If you meet the standards, you qualify. There are plenty of wealthy people in Maricopa County, but not all of them care about becoming an angel investor. The first step is to identify those people who are interested. The second step is to teach them about angel investing so if they've never done it, or barely thought about it, they'll know what they're getting themselves into. The third step is activate these people so they start investing in startups. Investors can fund startups on their own, or they can join a group, such as Arizona Tech Investors.    

Q: What is the PHX East Valley Angel Investor Initiative and how did it come about?

A: The East Valley Partnership, which advocates for the region, reached out to economic-development directors for Apache Junction, Chandler, Gilbert, Mesa, Queen Creek and Tempe and asked how it could help startup companies succeed. The response? More capital. The only way to start solving the capital problem was to begin talking about the deficiencies the community faced. We saw the need to educate people on how to become accredited investors. 

We look at the amount of innovation, measured by the amount of certain small-business grants, in our state and we are about 92 to 96 percent of the national average. So we're really good at generating good ideas, but where we fall behind is delivering early-stage capital to the startup companies. We're about 16 percent of the national average when it comes to delivering early-stage funds to the startup companies.    

We hope through the initiative to educate 250 people in three years to become angel investors through a series of six workshops beginning Oct. 4 at the ASU Chandler Innovation Center from 5 to 6 p.m. Other workshops will take place on Nov. 8, Dec. 6, Jan. 10, Feb. 7 and March 7. (A summary of what will be discussed at each workshop can be found here.)

It's an aggressive goal, but it's a goal we believe in and will have lasting effects and is an opportunity to have a good pool of resources for the future growth of the region.     

READ MORE: Startup hurdles are turning East Valley into 'tech wasteland'

Q: Where are the startups that you intend to fund and how much do they generally need?

A: In this area, tech startups ask for between $500,000 and $2 million. Our intent with this initiative is to focus on this East Valley, but it's ultimately up to the investor to decide which companies he or she will invest in. Investors keep their personal liberties to choose how they want to invest and where they want to invest.

However, there will be a PHX East Valley Sidecar Fund dedicated to people investing solely in East Valley startups. The sidecar fund is useful for people who aren't experienced with angel investing or want another investor to take care of when and where to invest the funds. Money from individuals is pooled into the fund and one sidecar investor can invest in companies alongside other angel investors.  

We're not looking to fund a certain number of startups. We want to invest in really good companies because investors are not simply there to throw their money around. It is about the quality of the company, and even after analysis and careful vetting, we still invest in companies that fail because of the high-risk nature. 

Q: Arizona's Angel Investment Tax Credit took effect in August. Qualifying investors who invest in certain businesses can receive a tax credit that equals up to 35 percent of their investment over three years if they report it to the Arizona Commerce Authority within 90 days of the investment. How does the legislation help the initiative?

A: The state Legislature approved the tax credit during this past spring session. It's a smart way for the state to give people more reason to take risks in startups. It attracts more angels to do this business. It's good for local entrepreneurs because it's easier to raise money from people who are in your backyard. Investors who have never done this before get a little nervous because they could lose their investment; it's a risky decision. But, if they get a tax credit for some of it, they won't lose all their money.

Some politicians say this is the state picking winners and losers, but it couldn't be further from the truth. It is not asking the state, the East Valley Partnership or Chandler to write checks to startups. This is all private sector. 

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