Working with angel and family office investors

Innosphere is a 501(c)(3) technology incubator headquartered in Fort Collins with offices in Denver and Golden, dedicated to supporting Colorado-based startups working in health-care innovation, energy and advanced materials, or hardware/software. We support 35 to 40 startup companies per year, working with companies over an average two-year period to help the founders execute a plan to build the business and scale their results.

One of the most visible aspects of the program is helping entrepreneurs work through the complex process of becoming investment ready. Generally, becoming investment ready is built on having a well-defined plan for how the company will make money, how the team evolves, how funding will be allocated and spent, and how the company will return capital to the founders and investors.

Following the recession, a key trend that emerged in the technology sectors that Innosphere supports was a strong shift away from seeking venture capital as the primary source for growth capital. There were some practical reasons for this, Venture capital under management declined significantly in Colorado, although it’s rebounding now, and the angel-investor community pulled back from direct investing. Lastly, companies were beginning to adopt “lean” capital light strategies for getting to market so smaller amounts of capital were now being sought which were not as good a fit for venture-capital investors.

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Since 2010, Innosphere mostly has been focused on introducing investment opportunities to angel investors, family offices and corporate strategic investors. A major issue that angel and family-office investors face is how to work through the due-diligence process of evaluating investments when they are largely not resourced for screening and vetting large numbers of direct investment opportunities. This is where Innosphere is increasingly playing a key role for the Colorado investment community.

From an investor perspective, the key purpose of Innosphere and other accelerators and incubators is finding high-quality companies with potential to scale and supporting the startup through the early growth stages. We have built in deal flow for investors who are looking for direct investment. Our interests are aligned with the investor and company in that everyone is shooting for a successful venture and financial return.

A key strategy for Innosphere in 2015 and 2016 is continuing to grow our investor network with angels, family offices and corporate strategic investors. In 2014, investors overall placed more than $21 million into Innosphere client companies. A significant amount of that funding came from angel and family-office investors. We want to make it easy to get involved with Innosphere to become part of our investor network. We have a formal program for working with individual angels, angel groups such as Rockies Venture Club, and family-office investors. Our process is very clear: Get to know the investors and their interest areas. How do they like to invest, at what stage, in what increments? Then, the magic is in matching individual investments with the investor.

How does this work in the real world? A family office decides it wants to get into direct investing. They partner with Innosphere to learn more and become part of the investor network. They spend time learning about the existing companies and, over time, make investments. They diversity their investment portfolio. Then, the family office allocates funding for direct investments and supports local startups.

Innosphere recruits companies into the program three times a year, so there is always a flow of new companies and opportunities to consider. We make introductions to investors confidentially to see if there may be an interest before making a connection with the company. This ensures that we are sourcing the most interesting investment opportunities to our close-in investor network.

Mike Freeman is chief executive of Innosphere. Contact him at mike@innosphere.org.