MCALLEN, RGV – Experts in business creation at the University of Texas-Rio Grande Valley say they are looking ahead to the creation of an investor network designed to help finance local enterprise.
The region is close to joining larger cities across Texas that leverage the support of an Angel Investor Network, an alliance created to foster start-up growth statewide.
There are currently 12 active angel groups in Texas with more than 400 accredited investors. The organization has invested more than $45 million to over 100 companies, according to the Alliance of Texas Angel Networks.
“At the end of the day, the Angel Network is designed to help finance new local enterprises that we want to launch here in the Valley,” said Dr. Mark Kroll, Dean of the College of Business and Entrepreneurship at UTRGV. “The other thing neat thing about having a formal Angel Network in place is that we can join a statewide network.”
Kroll addressed attendees at the Border Economic Development Entrepreneurship Symposium on Nov. 10. The event was coordinated by the Department of Economics and Finance at UT-RGV in conjunction with the Federal Reserve Bank of Dallas and the McAllen Chamber of Commerce.
Kroll talked about UTRGV’s efforts to create an entrepreneurial culture in the Valley. He explained the rationale for the university’s new Center for Innovation and Commercialization. He said it plans to assist budding entrepreneurs and create a laboratory where students can see the entrepreneurship process unfold. “We want the center to be a unifying force across the Valley. We believe creating an incubator will not succeed if you don’t have what we call the frontend help. The frontend help takes that individual with a new idea, from a cocktail napkin idea to a full business model,” Kroll said.
While the event’s agenda emphasized infrastructure and it’s impact on the Valley, Kroll’s presentation was a step-by-step plan to be a “unifying force across the Valley” for business development and innovation. The Angel Network will be the conduit that connects investors with those entities that have a solid business plan right from the start in order to spur growth, he said.
“Let’s say ‘Mark’ here comes up with the greatest new idea we could possibly imagine,” Kroll said. “And let’s say he goes to our Angel Network and says he needs $500,000 to launch it. His business model is in place, along with his business plan. He just needs the funds. Let’s say we come up with $250,000 in the Valley. By being part of the statewide Angel Network, we can send him up to other networks, and he can shop his idea there and solicit those funds in a systematic way.”
“The same is true for those upstate. We can bring new ideas down to the Valley, and put them in front of investors here,” Kroll said.
The Rio Grande Valley Angel Network has already been incorporated, and currently has about 15 members who are certified investors. The group is currently in the process of soliciting new members, and will be conducting workshops in the future in order to inform the public, Kroll said.
“Again, if you look at our larger cities around the state, you would be hard pressed to find any place even close to our size that does not have a formal investor network in place. We are in the process of starting that Angel Network here,” Kroll said. “Our students will be very much involved in the due diligence process. We want our students to get hands on experience, to see what it’s like to plan a new startup, and what you have to do to determine if something is really viable.”
After his presentation, Kroll took questions from the audience. The first focused on the venture capital community in Austin, Texas, and how the Valley has good community banks but no investment banks. Kroll answered this way:
“Obviously we are not on the VC (venture capitalist) map. Anything south of San Antonio is like, ‘you mean there are people there?’ Angel investors enter an enterprise at a whole different place than VCs. Venture capitalists generally aren’t interested in an enterprise they cannot put about $5 million into,” Kroll said. “And so, that being the reality, when somebody has got a company that is just barely off the back of a cocktail napkin they are not there yet. You cannot walk in to one of our banker friends and say I need ‘x.’ That is just not going to happen.”
Kroll proceeded to tell a true story about a start-up project in the Valley.
“I am going to tell you a true story which goes to what we are trying to address here. Every year, Dr. John Sargent up in Edinburg has a business plan competition. Last year he had 35 competitors. That is a lot of competitors and be aware, the winner needed about $10,000 just to get the idea rolling a little bit. Here is the bad news. He needed that $10,000 to leave the Valley. He needed that $10,000 to go set up housekeeping in Austin. I said, why? He said, ‘because that is where all the action is. That is where the entrepreneurial infrastructure is. That is where the people I can relate to, that I can piggy back off of, where I can network with, are.’ So, basically, our first venture investment was to finance somebody to leave us.”
Steve Ahlenius, president of the McAllen Chamber of Commerce, asked if UTRGV could fulfill a certain role when it comes to new business ideas. He said cities around the Valley can set up business incubators pretty quickly. He asked if UTRGV can take over once those fledgling businesses in the incubator are ready to expand. “I think the key strategy for the university, and you and I have had this conversation, is, I think you can take ideas that we can develop and birth at our incubators and any other community’s incubator and get them into 90- to 120-day intensive boot training, mentoring, and then ready to pitch, to the Angel Network and other areas.”
Kroll answered this way: “Just as a point of information, does everyone know the difference between an incubator and an accelerator? An incubator is floor space that is provided at a fairly considerably discounted rate of rent for new businesses; that generally the community is financing this to get them off the launching pad. But there is no expectation that they are going to take off. It is an attempt to get some innovation going in the community. An accelerator is a center where we have vetted very carefully the project. It is not just one or two out of ten, it is that one or two out of 50 that really look like hot prospects. You take them and you really give them a shot of adrenalin. You finance them. You provide them with extensive support. You nurture them very intently.”
And so in answer to Ahlenius’ question, Kroll said: “That is a possibility. They either make it or break it. It is like a boot camp.”
Another member of the audience asked if financing with the Angel Network is equity or debt financed.
Kroll responded: “Let me make a distinction, this is not a fund. It is a network. So let’s say you are a member. What we are going to do is we are going to screen a project, screen an idea and we are going to say, we think these are credible. We think these are worth listening to. No guarantees in life. But as I tell my students, if you want a guarantee, go buy yourself a washer and dryer. We vet them, we think they are quality. We put them in front of our angel people and they pitch their ideas.
“After that is done then you as an individual or let us say three of you sitting next together decide, let’s partner up and work with these people because we think this is worth pursuing. You will then do a deal. It could be debt, it could be equity. A lot of what you are seeing these days is convertible debt, that is a very, very, popular mechanism, some sort of convertible debt where we have four or five years and then we either convert or they are not going to have the money to pay it back.
“That is how we are going to manage this network. It is not a fund. Now, a lot of angel networks have funds. There may come a day where the membership says, we do not have the time, energy, effort, etc. Let’s hire a professional people to manage a million dollars, or two million dollars or whatever and do our vetting for us.”
Editor’s Note: Shown from left to right in the main image accompanying this story are McAllen Chamber of Commerce President and CEO Steve Ahlenius; keynote speaker Dr. Robert Coronado, assistant vice president in charge and senior economist for the Federal Reserve Bank of Dallas, El Paso Branch; Fabiola Urgel, a UTRGV senior economics major and a community development intern for the Federal Reserve Bank of Dallas, San Antonio Branch; and Dr. Mark Kroll, dean of the UTRGV College of Business and Entrepreneurship, at the 2015 Border Economics, Development and Entrepreneurship Symposium, held Nov. 10, 2015, at the McAllen Country Club. (Photo courtesy of UTRGV/Kristela Garza)