Fund represents new service to angel investors, startup community
Angel investor group Plains Angels, working with the MIT Regional Entrepreneurship Acceleration Program cohort and Brown Winick Law Firm, has launched the Plains Angels Investment Fund.
Tej Dhawan, co-founder of Plains Angels, is managing the fund, which is designed so members can pool funds together to fund startups and diversify their investment portfolios by investing smaller amounts in more companies.
Dhawan said entrepreneurs typically come to Plains Angels seeking between $25,000 and $50,000, but it’s difficult to find one investor willing to commit the full amount to a high-risk venture like a startup.
Plains Angels members have pooled funds before when several investors were interested in the same company, but establishing the fund will make the legal and accounting aspects easier, Dhawan said.
“Our hope is that by making the legal and accounting work easier, we’ll see more interest, more participation, because the greatest friction is in creating what’s called a special purpose entity, basically an LLC or a corporation to invest together. … We’ll have one tax return, one state registration, but multiple investments underneath,” he said.
The fund was officially formed on July 10 and made its first investment on July 20.
Dhawan said he hopes a benefit for startups will be improved access to funding they can use to meet the matching requirement for a proof of commercial relevance or demonstration loan from the Iowa Economic Development Authority. He said creating the fund elevates the mission of Plains Angels from what it was when the group started.
“[Plains Angels] literally created a convening space. That’s all we did,” he said. “This takes that convening space to removing things that we have identified as frictional elements to be removed further.”
Inviting members of other Iowa angel investing groups to participate in the fund is one future way to further “democratize” access to investors, which Dhawan said is Plains Angels core mission.
The idea for the fund stemmed from the collaboration of the Central Iowa cohort of the MIT REAP program to identify the region’s “must-win battles,” which include risk capital and building corporate connections with startups.
Dhawan, Diana Wright, Hank Norem, Steven Brockshus and Kevin Kimle, all members of the MIT REAP cohort, are collaborating on addressing the state’s early- and late-stage startup funding needs.
Dhawan said Brockshus and Kimle see an opportunity for funds providing up to $100 million or $500 million that can “bookend the need [of] those startups who have truly scaled over time.”
He said the cohort has learned that Central Iowa’s ecosystem has become “quite strong” over approximately the last decade, with some pieces that need to be homed in on. Making those improvements comes down to a community willing to help, he said.
“Know each other’s needs is the first part, and that’s what this REAP cohort has done for us is it’s exposed us to each other’s needs,” he said. “And then once we see the need, whoever has the ability to step in and help or connect somebody just helps. Our community has been pretty good about simply helping without seeking something in return, and I think that’s part of the reason it’s stronger.”