Like other investors distributing money to startups in the Baltimore area, Greg Cangialosi’s problem is the pain of self-awareness.
“We need active, early-stage capital in the ecosystem,” he’ll tell you, a sentiment echoed by venture capitalists who think Baltimore’s tech startup economy shows great promise save for a few key ingredients—ample employable talent and enough funding chief among them.
Through the Baltimore Angels, however, Cangialosi—along with some 40 members—hopes to close the funding gap in the region. Cofounded in 2009 by Cangialosi and 410 Labs cofounder Dave Troy, the Angels had a perfunctory impact at first, investing in just six startups over three years.
But a reorganizing effort begun in late 2011 and spearheaded by Cangialosi has now given the Angels new life.
Miles & Stockbridge law firm performs pro bono legal work. A membership fee to pay for administrative costs has been added. Monthly meetings now happen regularly at the Ritz-Carlton hotel on Key Highway. The group formed an LLC in early 2012. And in that year alone, the group invested more than $850,000 in eight startups, including Parking Panda and SocialToaster. Now the Baltimore Angels intend to make 2013 the year of smarter investing.
Becoming smarter angel investors means placing smarter bets. Startups the Angels invest in meet several criteria:
- Startups have already been through a seed round of funding. In other words, Baltimore Angels’ money is never the first money a startup has seen.
- The product is typically rooted in cybersecurity, mobile or social, although startups with hardware components certainly aren’t excluded. What’s definitely out are biotech and life sciences startups.
- The product has been through its beta phase and has been proven through revenue growth or customer adoption.
- It’s not a requirement for startups to have paying customers, but it’s smart for founders to have developed a distribution strategy for how the product will reach the marketplace.
The corollary to marking smarter bets on startups is keeping some cash in reserve. Rarely do the Angels fail to save funding for follow-on rounds of financing—the group funded part of SocialToaster’s Series A round, for example. Of course, the Angels’ sharper focus these days is a result of several years of trial and error.
“Angel groups have a notoriously horrible reputation,” Cangialosi said one afternoon in December at the Federal Hill incubator and coworking space he cofounded, Betamore. A startup founder and owner himself, Cangialosi started investing after he sold his e-mail marketing company Blue Sky Factory to Atlanta-based WhatCounts in July 2011.
In the early days, the Angels’ problems were more administrative: lack of follow-up with startup founders, lack of transparency in terms of where money is going, moving at a snail’s pace.
As an overall group, though, angel investors are often caricatured as the inauspicious dentist or lawyer, a person with a heap of money who suddenly takes an interest in writing big checks for new companies. It’s this type of angel investing that has led some, like Wasabi Ventures general partner Tom Kuegler—a man who invests sometimes in companies so early-stage they’ve yet to have a product, not to mention revenue—to predict a bubble bursting soon in the angel investing world.
Not coincidentally, the increase in the amount of seed funding startups have received over the last several years, the same increase that has fueled the Series A crunch, comes from an increase in the number of angel investors cutting deals.
Taking a different tack is part of what Cangialosi brands as the Baltimore Angels’ smarter approach. For one, the group itself doesn’t represent a general fund. Rather, members work together as a pledge group. The Angels access a list of startups applying for funding on Gust.com, and members pledge a certain amount to invest on a first-come, first-serve basis. From there, it’s a five-step process to get from initial interest to the Angels completing a deal.
- A smaller committee of Angels members pre-screens startups that apply for funding.
- That committee independently verifies as many facts about the startup as possible, and then arranges a phone call with the founders.
- By e-mail, all the members of the Angels are shown a list of the top startups pre-screened by the smaller committee. The top three pitch at the Angels’ monthly meeting, but receive some coaching beforehand.
- At the monthly meeting, all the startup founders are in the room watching the other founders pitch.
- If the Angels like what they see, within three months a deal is completed. Generally, the Angels invest anywhere between $30,000 and $350,000 into startups.
Despite the extensive vetting, funding isn’t guaranteed.
“Angel investing is a serious business,” Cangialosi said. “We say ‘no’ over 95 percent of the time.”
Still, the volume of deals has increased, and Cangialosi said the Angels expect to do more deals in 2013, not only in Baltimore city, but also in New York City, Raleigh and Austin.