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MORALEZ: Hoosier angel investment needs further shots in arm

October 18, 2014

moralezWhen I started my first company, Bio-Storage Technologies, back in 2002, raising angel capital was time-consuming and inefficient, and the results were mixed at best. We were, however, fortunate to find a few angel investors who had the ability and confidence to invest their capital and experience to help us launch.

Today, BioStorage is a global leader in the bioscience sample management business. Since our origins, angel investing in Indiana has made significant progress as evidenced by recent reports; however, our state has much to improve to become more competitive with neighboring states.

According to the latest Halo Report published by Angel Resource Institute, Indiana might have an opportunity to seize more mind share and more deal flow.

Of the top 10 U.S. angel investor groups, two are in Texas, one is in Arizona, another in Connecticut, and the top group is in Seattle. Only two are in California and one is in Boston.

Of even greater interest to Hoosier entrepreneurs, the Great Lakes region—defined by the report as Indiana, Illinois, Michigan, Ohio and Wisconsin—had the second-highest number of deals/investments in the first quarter of 2014, with 17.1 percent, just 0.6 percent behind California.

More impressive is the fact that the region generated nearly 25 percent of total investment dollars during the period. California came in at 16.7 percent and the Northeast at 11.5 percent. We Midwestern angels must be doing something right to be posting these numbers.

Yet, Indiana’s angel investor groups remain low-profile and our accomplishments relatively unsung. This, despite groups like HALO in Indianapolis surpassing the $20 million investment mark over the last five years and my own group—VisionTech Angels, which has chapters in Bloomington, Indianapolis, Lafayette and Warsaw—investing more than $6 million in 12 companies in less than five years.

Other groups, like Elevate Ventures, have also spurred capital and talent formation around the state and play key roles in this ecosystem.

Many states have recognized the value of angel investors and the potentially significant impact on business and job creation. A growing number of states, including Maryland, Arizona, Connecticut, Georgia, Nebraska and New Mexico, among others, have implemented attractive tax credits for angel investing.

Here in the Midwest, Minnesota provides a 25-percent credit to investors or investment funds that put money into startup companies focused on high technology, new proprietary technology, or new proprietary products, processes or services in specified fields. The maximum credit is $125,000 per person and non-Minnesota residents are eligible.

Minnesota’s angel tax credit program is so popular that it has already exhausted the $12 million set aside for the program in 2014, and the set-aside for 2015 has been increased to $15 million.

And what of Indiana? Indiana offers a 20-percent tax credit for Indiana resident angel investors who make investments in qualified Indiana companies. Indiana recently doubled the maximum allowable credit per company.

However, the credits still have significant limitations that make it less desirable for investors outside of the state to invest in Indiana startups.

Awareness of angel investors and what we bring to the table ultimately falls on our shoulders. We need to educate the business community, universities, entrepreneurs, lawmakers, media and potential investors on our value proposition for this ecosystem.

We also need to accept and note our failures and, most of all, recognize that this is a very real part of innovation and early-stage investing. Risk and failure go hand-in-hand with startups (more than 50 percent fail) and many valuable lessons are to be learned and shared among our entrepreneurial community.

We are making progress. Last July, VisionTech Partners and the Indiana University Kelley School of Business co-sponsored the Innovation Showcase’s educational session on angel investing, attracting 300-plus attendees. The Innovation Showcase, which featured almost 75 entrepreneurial pitches, had some 850 attendees.

Despite the hurdles, Indiana is moving toward a more dynamic capital ecosystem where angel investors play a key role. Successes by angel-funded companies like ExactTarget, Endocyte, Angel Learning and Aprimo have created wealth for investors and jobs for Indiana, and sparked a flurry of entrepreneurial activity.

Let’s keep it going and break angel investing in Indiana out of the shadows and into the forefront.•

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Moralez is managing director of VisionTech Partners and VisionTech Angels, an innovation consulting and angel investing group. Views expressed here are the writer’s.

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