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Angel fund formation narrative

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  • 1. Angel Fund FormationARC has provided resources for form 5 Angel Investment Funds in the Region. Each Fund will costapproximately $30,000 to form. Rural Angel Funds typically aggregate $1M in private capital to make5 – 10 investments in their local community. Additional funding partners could expand the scale ofthis program to serve more Appalachian communities.ARC has contracted with RAIN Source Capital to provide technical assistance to selected entities thatdemonstrate the ability to convene a group of angel investors in their area to form new angel capitalfunds in Appalachia. To be successful, entities will need to demonstrate their ability to: o invest in local and regional early-stage companies;; that would be attractive to a group of angel investors. diligence, monitoring of portfolio companies, and provision of ongoing angel fund administrative support. Selected applicants are anticipated to raise over $1 million each in local investment capital for early- stage and/or expanding companies. Upon formation of a fund, the angel investors typically self- finance the fund’s ongoing activities, and, if appropriate, provide reimbursement of start-up support, enabling continued support for other entities to form new additional angel funds in Appalachia. Angel Investing in the United States Angel investors are an important source of capital for growing firms. The Center for Venture Research estimates that U.S. angel investors provided $20.1 billion in approximately 61,900 deals (about 35,000 small businesses) in 2010. Many of the investments were in start-up or very-early-stage companies. The best available estimates are that over 265,000 people have made an angel investment in the last two years (including accredited and non-accredited investors). Many more people could become angels—based on a net worth of $1 million or more, the potential number of angel investors is 4 million. Between 10,000 and 15,000 angels are believed to belong to angel groups in the United States. The average angel group has 42 investor members and invested a total of $1.9 million in seven deals in 2007. According to the Angel Capital Association and the National Association of Seed and Venture Funds, the Appalachian Region has 15 angel funds, leaving significant areas underserved by this important source of capital, per the map below.
  • 2. RAIN Source CapitalRAIN Source Capital is an industry leader that has efficiently and effectively guided communitiesthrough angel fund creation and firms.A total of $150 million has been invested by RAIN angel funds, members, and VC’s, and fivecommunities are currently planning new RAIN angel funds. Through its proprietary process, RAINSource Capital guides interested parties in assessing the feasibility of an angel investment fund intheir community. As appropriate, RAIN Source guides groups through the three-phase process toAn experienced manager of angel investment funds, RAIN Source Capital is under contract withARC to provide the selected entities the technical assistance to form an angel fund(s). Entities willapply to ARC to receive technical assistance to form an angel fund. RAIN Source Capital willprovide in-person, on-site technical support for the formation of these funds, to include: meetingwith the key angel investor/leaders to discuss fund structuring options;; fundraising support to
  • 3. nd. RAIN SourceCapital may be retained by the local angel fund to manage ongoing activities, or the angel fund couldbe managed locally.Project ExpansionCommunity Foundations and other partners could fund the formation of additional Angel Funds intheir service areas. Costs would be $30,000 - $60,000 per community / Angel Fund.Projects Funded to DatePress ReleaseARC Announces Support for Creation of Five New Angel Investment Funds in the AppalachianRegionSeptember 2012WASHINGTON, September 27, 2012—Five applicants have been selected by theAppalachian Regional Commission (ARC) to receive funding and technical assistance tocreate new angel investment funds that will invest in small businesses in the AppalachianRegion.ARC is providing $235,000 in grants to stimulate capital formation by the selected applicants,which, along with the technical assistance underwritten by ARC, is projected to result in $5million in new angel fund capital available for business investment.The selected applicants were formally announced by ARC Federal Co-Chair Earl F. Gohl atthe Ohio State University South Centers, in Piketon, Ohio, on September 27. "This is anopportunity for folks who have made it to capitalize on the opportunity to invest in their owncommunities, in their own region, to ultimately help their own children and grandchildren aswell as others," said Gohl.The selected applicants include: Queen City Angels (Cincinnati, Ohio), which will receive a direct ARC grant for the formation of an angel fund in Appalachian Ohio. Kentucky Science and Technology Corporation (Lexington, Kentucky), which will receive a direct grant for angel fund formation in east Kentucky, as well as technical assistance to be provided by RAIN Source Capital through an ARC grant. Technology 2020 (Oak Ridge, Tennessee), which will receive technical assistance from RAIN Source Capital, through an ARC grant, to form an angel fund in east-central Tennessee. Virginia Community Capital (Christiansburg, Virginia), which will receive technical assistance from RAIN Source Capital, through an ARC grant, to form an angel fund. West Virginia Angel Investor Network (Bramwell, West Virginia), which will receive technical assistance from RAIN Source Capital, through an ARC grant, to form an angel fund.In welcoming the grant to Queen City Angels, chairman and founder Tony Shipley said,"Beyond the initial three Fs—friends, family, and founders—this group can help fill the nextlevel of investment needed to really help get great businesses going."
  • 4. ARC has determined that access to capital and credit is one of the major factors limiting business creation, expansion, and growth in the Appalachian Region. This has been an historic problem in the Region relative to many other parts of the country. Angel funds represent one antidote to this problem. Angel investors are an important source of capital for growing firms: The Center for Venture Research at the University of New Hampshire estimates that in 2011, U.S. angel investors provided $22.5 billion to more than 66,000 ventures. Many of the investments were in start-up or very-early-stage companies. The number of active investors in 2011 was estimated to be 318,480 individuals. Many more people could become angel investors; the potential number of "angels" is 4 million, based on a net worth of $1 million or more. Between 10,000 and 15,000 angels are believed to belong to angel groups in the United States. The average angel group has 42 investor members and invested a total of $1.9 million in seven deals in 2007. According to the Angel Capital Association and the National Association of Seed and Venture Funds, the Appalachian Region has 15 angel funds, leaving significant areas underserved by this important source of capital. The funding and assistance announced by ARC on September 27 represent an important step in addressing the needs of these underserved areas. These activities are part of ARCs Appalachian Capital Policy Initiative, which has four objectives: 1. To expand bank lending for business expansion and growth; 2. To attract new sources of equity investment into the Region from private corporations, pension funds, national financial institutions, philanthropic institutions, and intermediaries; 3. To build the capacity of development loan funds (community development financial institutions, or CDFIs) and other providers of capital to expand into underserved communities; and 4. To increase the volume and quality of deal flow and financeable transactions by strengthening the entrepreneurial ecosystem.    

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