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Local angel investment collective Ariel Southeast Angel Partners is having a banner year, according to the group’s president, and it’s not over yet.
“We’re already half-way through the year and we’re about 20 percent up on our deal flow and deal activity,” said Ray Wenig, Ariel’s president and founding member of the board of managers.
Wenig started Hilton Head Angel Partners in 2003 and later merged with the Savannah angel group in 2006. They eventually rebranded to Ariel Southeast Angel Partners as their membership expanded throughout the coastal region.
For those new to the premise, angel investing allows individuals to invest directly into a new startup in return for an equity stake.
Ariel Southeast does not require its members to contribute to any venture it has approved for funding and members can give as much as they want in increments of $5,000.
Wenig attributes the flurry of activity this year to a more active board, increased membership and an upturn in the economy, as more people look at seed-funding investment opportunities.
The group just had their second successful “exit” in less than a year from a Florida-based medical device company that more than half their members gave early-stage funding to.
Nancy Matthews retired from the pharmaceutical industry after 40 years and is a member of Ariel along with her husband. She works alongside Dr. Blake Long, a pediatric cardiologist, on due diligence projects for the group and enjoys the thrill of getting in on the ground floor of a promising new company.
“It’s been a wonderful exercise in learning and keeping up with what’s coming out and I often find we’re way ahead of what shows up on the news,” said Matthews. “We’ve also enjoyed the fruits of an exit or two, and it’s been a lot of fun.”
Ariel currently has about 16 portfolio companies in play, predominantly in the fields of health and biotech sciences, a reflection of the group’s interest and professional background in the health care industry.
“When we see a medical space deal, it’s better defined, it’s better packaged, it’s better focused,” said Wenig. “Just their whole business plan is much tighter.”
The membership ranges in age from 25 to 75, consisting of current and former C-Suite executives and entrepreneurs, some still working and some retired. Wenig said since last year, they’ve increased their membership from 40 to 55.
Ariel made its second exit earlier this year from New Wave Surgical, a Florida-based startup that developed and marketed a medical device called D-Help, which keeps surgical instruments warm and minimizes fogging on surgical cameras.
An “exit” is the method by which an investor or group of investors cashes out of a deal they made previously, for example when a business is bought out by a larger player. This was the case with New Wave, which was purchased by a Massachusetts-based international health care company Covidien.
Ariel member Jim Goodlett said the buyout was worth about $115 million, a 17-fold return on investment.
Across the industry, there’s been a flurry of acquisitions and mergers — a result of pent-up demand after the recession — which has been good for venture-funding groups like Ariel as well.
Blake said just as Covidian acquired New Wave Surgical, Covidian was then acquired by Medtronic, a medical device Fortune 500 company.
“The big corporations are buying medium-size groups and the medium-sized ones are buying our angel groups,” said Blake.
“The small company becomes the best value for the large company to acquire,” said Wenig.
The New Wave deal was also surprising in that it happened within four years. The timetable for the angel group was three to five before the recession, but that soon stretched to five to seven.
“The idea now is that we’re looking at deals that have a shorter timeline, and that means they have to have a faster ramp up to sales,” said Wenig.
“We are on track for about one exit a year for the next three years,” he said. “That’s the pace we like.”
Not that it’s all about seeing green. Long said depending on how much money a member invests, he or she can get a board seat on the company and also have a hand in influencing its decisions.
“We bring capital to these companies, but we also bring advice and expertise,” said Long. “We actually had a board member with New Wave Surgical, from our group, who provided a fair amount of operations expertise to the company and would go meet with them regularly.”
Looking locally
Ariel is investing in about six companies a year after weeding through hundreds of pitches.
Lesley Francis, a board member, said the group would like to attract more locally based companies with established, credible business plans.
“We certainly are very interested,” said Francis. “We’d like businesses to know about us because we are interested in diversification and doing more in this region.”
However, Matthews said it’s important for companies to understand just how thoroughly they vet potential investments.
“We have an established system that we march through in our due diligence process, and among the things we look at is the quality of the management … we look at their marketing … (and) how well they have looked at their numbers, many make the mistake of not asking for enough,” she said.
Wenig says the group has invested nearly $5 million over the past decade and look forward to propelling more entrepreneurs to the top of their industry.
“I created seven companies when I was an independent entrepreneur then decided I would let others do that job and help them succeed as an angel,” said Wenig.
For more information on Ariel Southeast Angel Partners, go to http://arielsoutheastangels.com.