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'Like an angel coming down from Heaven': Alamo Angels matches local investors with start-up companies | Commerce Street

A San Antonio organization connects start-ups – many of them local – with angel investors and support to jumpstart bright ideas.

SAN ANTONIO — In this episode of Commerce Street, an Eyewitness News Original podcast, KENS 5 speaks with Sebastian Garzon, executive director of Alamo Angels, andy Randy Harig, CEO OF the Texas Research & Technology Foundation/VelocityTX, about how Alamo Angels connects startups with angel investors and how its mission aligns with local economic development organization Texas Research and Technology Foundation (TRTF).

Listen to the full episode of Commerce Street below or download on Apple Podcast, Spotify or Google Podcasts: (article continues below)

(You can follow Alamo Angels on Facebook, Instagram and Twitter and learn more about TRTF here.)

KENS 5: First, Sebastian, for someone who isn't familiar, what is Alamo Angels?

GARZON: Alamo Angels is a group of angel investors, accredited investors. And typically when people ask me, they have no idea what all that means. I usually say, have you watched Shark Tank? And that's a way for people to familiarize themselves a little bit with the dynamics that go on within our organization. What we do is we source the best quality companies that we can find in San Antonio and even nationwide, and we basically put them in connection with investors that we have here locally. 

And so dynamics on that are very much like Shark Tank, like I said before, because they come, they do a quick presentation, we have a Q&A session, we also have a little bit of an internal discussion within all of our investors to figure out if this is an investment opportunity that we want to pursue. So that's basically what we do. We find early stage companies when we invest in them. 

KENS 5: For people who aren't familiar with it, what is angel investing and how is it different from other forms?

GARZON: So in the entrepreneurial world, one of the key elements that any entrepreneur or any startup, early stage company is looking for in order to grow and succeed, they need access to capital. And so with that, there are typically high net worth individuals that are willing to take the risk in providing them with access to capital. And when I say a risk it's obviously because these are very early stage and so you just don't really quite know how that's going to go. 

It's very different investing on an early-stage company as opposed to one that is already on the on the stock market, for example. And so there is some risks involved. But with that, there is also a lot of potential for high returns. So all of our investors must be accredited. And that is that is determined by the Securities and Exchange Commission. And there is very specific requirements that people need to meet in order for them to be considered accredited. And some of them at the end of the day is basically they need to be high net worth individuals that have the capacity and the resources to invest in these companies. 

KENS 5: Let's talk about the connection between Alamo Angels and the TRTF. What was the genesis there?

HARIG: Sure. So TRTF, through Velocity, incubates and accelerates companies. And so we had a very close relationship with the Angels group, but a lot of the angel groups around the country have the same issue and that they get a group of investors to come together and put in some money to hire an individual to recruit companies. And they use most of their budget on the salary of the individual they hire. So they don't really have a lot of money to do due diligence and the things you really want to do. 

So the board of Alamo Angels came to us and said, would you incorporate this into what you're doing? Because you're already doing most of the work looking at companies, you're very familiar with it and you have the infrastructure. And so we really worked for about six months to put it together to make sure we understood the value proposition. 

There's three different groups of investors or people that are organized in an angel group, and one is the sophisticated investor that Sebastian;s talking about. One is the newbie who has a little bit extra money and says, I just want to learn. And then there's the support people, the lawyers, accountants, the patent people that are important as these companies grow as a resource. So we have to have a value proposition for each one of those written down with very clear and understanding so we can move forward and then. We bring all the administrative functions and the finance functions through our staff at Velocity and TRTF so we were able to bring in a very high qualified, highly qualified director in Sebastian, because half of his salary is paid by Velocity and he has other duties within Velocity that are really very similar to what he's doing in Alamo Angels. 

So by doing that, we were able to create this fund, a portion of the fund that is set aside for doing the due diligence. And that's the real important piece of investing. You can get excited about a presentation, but until you really understand what's underneath the sheets, you don't know if it's a good investment. So with that, we feel we at TRTF and Velocity they bring to the table that discipline to be able to say, OK, we're interested in it now. Let's really take a deep dive into it. And that's what Sebastian's real talent is. We we hire an individual that does our first deep dive, and then Sebastian takes it from there with the investors and they go deeper and deeper until there's an investment made. And that's typically from one to three months from the time the presentation's made. 

We do a lot of work very quickly because investors in this realm, the sophisticated investor, has decided to take a small portion of his or her portfolio and invest in these very early stage, high risk companies. They don't want to be around long. This is this is almost a game for them to... let's go see if we can help start ups and see if we can make a little money. And so the attention span's pretty short. And so the process has to be quick. 

KENS 5: What kind of qualities you look for in startups that you and what kind of is that process like for them? 

GARZON: There is one big thing that we look for, other than the most obvious, which is obviously making sure that there is an actual problem and that they came up with the best solution for the problem. But one of the comments that I usually share with them is, the team is very important at this. At this point in the game, you are a lot of times investing in the person that is trying to get things done. Sometimes you get these fabulous idea about the team behind it may not have enough experience or knowledge to get it through that next step. And then sometimes you have an idea that is perhaps not the best idea in the world, but it's still a good enough idea, but you have such a rock star team behind it that  you know for sure they are going to take it from A to B. And so we really emphasize a lot on the team aspect of it. And one of the things sometimes we say or I say when I am talking to these entrepreneurs is we're investing on the jockey and not the horse, and that comes back to to to the importance of having a good team in place. 

KENS 5: What types of companies or businesses or startups you work with?

GARZON: We're industry-agnostic, meaning we don't have any specific industry that we're interested in investing on. But what I can tell you is we've seen the appetite of our investors tends to go towards anything technology related, life sciences, maybe medical devices, consumer products, those those are typically the industries that we tend to go to. But recently, for example, we invested on a company that is doing devices for sports, for basketball. And so it all depends on on how the company comes to us and the type of appetite that we may have at the moment. 

KENS 5: Are there any recent businesses you've partnered with, or recent milestones you're excited about?

GARZON: Yeah, I think one one comes to mind. One of our most recent investors was matched with a company from the got formed in UTSA. It's called Alt-Bionics. And we loved it because obviously they are from San Antonio. They went to one of our local universities and their mission is very much something that aligns to most people that learns about them, which is they are doing affordable prosthetics. So it was definitely one that we we thought would be a good investment and we wrote them a check because of that.

KENS 5: And how are they able to provide that?

GARZON: I don't know the whole technical aspect, but what I do know is in the market today, one of the cheapest ones that you can get, it's around ten thousand dollars or so. They are aiming at doing it somewhere between three and five thousand. 

KENS 5: That's great. I mean, that's service oriented as well. From TRTF's perspective, Randy, how does this fit into your mission?

GARZON: So our mission is economic development for San Antonio, Texas. And so we're the lifeblood of growth, especially in San Antonio. And so for us to be able to foster these startup companies and build them and build employee base is exactly what our mission is. So Alamo Angels fulfills one of the three legs, which is funding. Now, you can have the best idea in the world. You can have the best management team in the world, but if you don't have the funding to go with it, you're not going to get off the ground. So it is one of several vehicles we have for funding at different stages.

KENS 5: And you mentioned there the three legs gap has been around for decades. But for people who aren't familiar with it, if you can just kind of break down a little bit into all of the different components, I'm just sure that

GARZON: So we were formed in 1984 by General Robert McDermott, who was then head of USAA Insurance to foster economic development around the fledgling life sciences industry in San Antonio. Flash forward, the industry has grown substantially, the value of our property that we were gifted by Tom and Nancy Powell grew. And so we were able to monetize that property. And then we came downtown and said, OK, what are we going to do with? 

So we formed Velocity TX, that was our first subsidiary. Well, the first subsidiary was Merchants Ice, to buy property downtown. Then we formed Velocity to incubate and accelerate the companies that we've been talking about. Then we have gone on to incorporate Alamo Angels into that. And then finally, we have Community House and Community House is another funding mechanism. But for us. And so we are a nonprofit foundation. And so as such, we need funding. Right now we're doing it through sales of land. But we formed Community House to look at legacy companies in San Antonio that are at generational transition, that don't have the next generation ready, willing or able.

 And so we sell your corporation to Community House. We'll keep management. We'll keep the name on it. We'll take the family lifestyle out of it. We have a better tax structure because we put it in a trust and the money that flows in excess revenue goes into a fund that helps sustain first TRTF, and then as we buy more companies, we build that fund up where we have not only sustainability, we have a recurring fund that funds economic growth, allowing us to expand to buy more properties, build more buildings, create more opportunity for jobs and investment. 

KENS 5: We've talked about why this is great for startups, but what about the investors?

Like any good investor, you are always looking to diversify. And so that is key when we talk about investments. And so a lot of our investors, it's not uncommon for them to have some chips on real estate and then some chips on the stock market; and then early stage companies are an investment that is very fulfilling. And I the the name angel investor a lot of times comes from that, because you are not only providing the access to capital for your dream to come through, but you are actually helping them get from point A to point B. And so it does become, when you are in the shoes of these entrepreneurs, it does become like an angel that just is coming down from from heaven to help you accomplish the dream. 

And so a lot of our investors are not just seeking the business out of it and usually to get a return on their investment, but also to help out these companies that are trying to to make something better for themselves and for the world that they live in. So diversification is one of the key aspects of it. But giving back to the communities is also another one.

KENS 5: You probably start to get to know some of these startup teams pretty well. What is that moment like when you connect the startup and the investor?

GARZON: That is very fulfilling on our side as well, because like I said, a lot of times, they also want to get involved. They also want to provide guidance. They want to serve almost as a mentor. That is not the case with all, right, some people just want to write you a check and enjoy the ride and hopefully see a return on that investment. But some others want to be considered for any type of strategic guidance that the company may be seeking and making those connections, it's always good just because a lot of times the companies that we're bringing here are companies that are doing something different than everybody else is doing. They tend to be very innovative in nature. And so it's always good for the investors also to keep up with the latest technologies and innovations that are going on. 

Yesterday, for example, we had our pitch event for this month, for May, every single month. The third Wednesday of the month we offer up each event, feature three companies, they all came in person. We're one of the few angel networks in the nation that is already meeting in-person, and that's, the entrepreneurs themselves told us that when we told them, yeah, it's in-person,  they were super excited, but just getting them to connect, then a lot of times they end up partnering and collaborating, even if they don't write them a check. So I think I think that's also part of the dynamics that we're trying to foster. 

KENS 5: You mentioned three business pitching each month, so that's a high volume of start-ups.

GARZON: Yeah. On average, we're getting eighteen applications per month and out of those 18, we're only looking at the best three, and so we've put a lot of processes in place to really come up with the best companies that we possibly can. And so we restructure our application process. We've put together a screening and a selection committee. All in all, at the end of the day, once you see those three companies, they've already went through a process. About 10 different people will review those applications and their pitch decks and then they actually go through pitch-coaching sessions. So by the time they come to one of these events, they've already gone through that application process. They've gone through the pitch-coaching session and now they're ready to present. 

KENS 5: What else is important for people to know?

GARZON: I think when we talk about entrepreneurship, we need to think of it as a whole ecosystem and as an ecosystem, there is a lot of different moving pieces. And in order for that ecosystem to fully function, you need to have very key elements as part of it. One of the key elements on that entrepreneurial ecosystem, it's always funding. And so having that, I think it helps the whole ecosystem to grow and succeed the way it's supposed to. So Alamo Angels plays a vital role in the San Antonio startup community and the early stage companies because we are fulfilling what we used to be a gap for the longest time. But but we are now trying to get better and more sophisticated and providing bigger and better amounts of funding for these companies for these companies to grow and succeed. 

HARIG: I get excited about it because it expands our ability to support the startups in the city, but it also gives us more visibility to the sophisticated investor. So one of the things we were doing before Alamo Angels was we would take our companies that we were incubating here and we would put what we call our EVP, which is our entrepreneur program, where we would rent the ballroom at the Witte and we'd bring in 250 investors and they would give their live pitch to those investors, and then stationed around the room, they would be able to have direct conversations with them after. Now, with bringing in Alamo Angels, we're planning one for fall, but we're bringing even more sophistication to it and we'll be able to broadcast that program so we can bring in in that kind of thing. It will go beyond just the membership for San Antonio. We'll put the word out nationally that this program is going on and hopefully attract investors from around the country who see the value of what we're doing at Alamo Angels and want to become partners here because we're providing the right product for them, the right opportunity for investment. And so the bigger we get and the more sophisticated we're allowed to get with our budget, then the better product we can offer. So I'm extremely excited about that piece of what we're doing with TRTF. It's it's very, very important. 

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