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New healthcare businesses get ahead with Minnesota Angel Network

on August 17, 2011 Source:

Just because entrepreneurs have an idea or a business plan or even a product doesn’t necessarily mean they are worthy of receiving startup funding.

That need to create quality deal flow for angel investors as well as increase the success rate of entrepreneurs in fundraising has led to the creation of a new economic development effort in Minnesota. Called the Minnesota Angel Network, the group that launched Tuesday aims to screen worthy startups looking to raise between $50,000 and $4.5 million and put them through an educational program that will fill the holes in their business plans and get them ready to face the big, bad world of fundraising.

“We want to make sure we meet the needs of the investor,” said Todd Leonard, executive director of MNAN. “Investors are saying, ‘We don’t want to look at every deal.’”

Once a company graduates from the program with a purple-belt certification (yes, MNAN has martial-arts inspired levels – green for when startups first enter the program and purple for when they leave) they can access a members-only portal that connects entrepreneurs to angels.

Just applying to the MNAN program, however, will cost startups $120. Those selected will need to shell out another $875 in administrative fees, although discounts may be available to certain startups through scholarships. There are also donors who can offset some or all of this administrative fee through sponsorships, Leonard said. An additional, unspecified education fee will also be levied and the amount will depend on a variety of factors including a startup’s level of sophistication, its size and whether it has revenue.

In exchange, each startup will have access to a team of eight experts selected from the local business community to help them address gaps in their value proposition ranging from marketing and IP law to accounting and regulatory matters. Advisors will spend an average of 80 pro bono hours cumulatively to help these fledgling startups get to the purple certification. Advisors will work with five companies a month.

“These advisors help prepare the company for interaction with investors,” Leonard said.

He added that advisors from 14 different companies, including accounting firm Wipfli, law firm Fredrikson & Byron, regulatory and clinical services firm The Integra Group, will be advising selected startups. Already seven startups are undergoing the program and advisors have spent a total of 2,000 pro bono hours. The 14 firms have also donated some money.

“That is a lot of time and money that has been donated,” Leonard said. “This effort is a first-of-its-kind in the country.”

That may well be the case, given that MNAN neither represents an accelerator that actually gives startups money, advice and access to investors in exchange for some equity, nor a pure angel network. The Wisconsin Angel Network, for instance, charges angels to join, while angels will be able to access MNAN’s online portal for free. Other online portals connect entrepreneurs to angels for free like PlanHeaven or for a small fee like Angel Investment Network, whose chapters in various U.S. locations typically charge around $199, sometimes less.

MNAN’s model appears to be a hybrid of an online service that connects angels to entrepreneurs for a fee, and the educational program focused around expert business advice that accelerators offer. In the online portal, companies will be able to put details of their business plan for angels to review.

Yet, it’s not clear how much time each company will spend in going from green-belt status to purple-belt MNAN certified status. Initially, Leonard said that companies will take 60 to 120 days to complete the program. But in a subsequent interview he said that the speed at which the startups achieve the purple-belt certification will depend on the CEO of each startup and how fast they want to make the necessary adjustments.

Already, several angel groups have joined MNAN, including some from Wisconsin, Illinois, Michigan and Missouri, as well as St. Paul-based RAIN Source Capital. Leonard hopes that a company that has received the purple-belt certification will receive angel investment in six months.

“We have identified $200 million worth of funds represented by investors and other networks both here and throughout the U.S.,” he said. “Most recently we had a West Coast angel fund partner representing 150 investors meet with five of the seven of the companies …that are going through the beta process.”

Joy Lindsay, whose Minnesota company StarTec Investments provides seed capital for early stage high-tech companies, has served as an advisor to an IT company currently undergoing the program. Lindsay said that she is inundated daily by e-mail requests from entrepreneurs pitching their ideas and usually responds only if the pitch comes with a referral from a known source. Narrowing that deal flow in the way MNAN expects to through the online, members-only portal can be helpful in that regard. It will also help Lindsay to connect with other angels and do deals together.

“I can see us using the portal,” Lindsay said.

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