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CBSM students get their wings in Angel Investing

 

Story by Kim McGinnis

This spring, College of Business and Security Management students Dave Sauter, Manuel Beza, and Zach Norum gained hands-on experience in new venture finance by participating in the AV����̳ Angel Conference (AAC).

While called a “conference,” the AAC is actually a structured twelve-week long program that teaches AV����̳ns about angel investing, the practice of individual investors financing small business ventures in exchange for equity. Angel investing provides a critical source of funding for small businesses.

The AAC combines education sessions with an actual investment in an early-stage AV����̳n company. AAC investors contribute $5,000 per share to participate, and then go through a rigorous process of evaluating a field of companies seeking investments. Potential companies are narrowed down to four, and investors are assigned to one of the four finalists to conduct in-depth due diligence. At the conclusion of the AAC program, the pooled contributions from investors, approximately $100,000, are used to purchase an equity stake in one company, selected by an investor vote. This year’s recipient is Prismatext, a start-up that serves avid readers with an interest in language learning, also the 2022 winner of UAF Arctic Innovation Competition. The company uses established techniques and proprietary processes to integrate foreign languages into books that can be purchased from its website.

“This has been one of the most rewarding experiences in my time at UAF,” stated MBA student Zach Norum. “Being able to work directly with so many different people with such a breadth of knowledge and experience was invaluable, it has taught me so much about the importance of networking, and let me apply hard and soft skills (Financial analysis, communication) that I have developed during my time at UAF. It was an amazing experience.”

The opportunity for students to participate in AAC was made possible through a partnership between CBSM’s Student Investment Fund and the AV����̳ Center for Innovation, Commercialization, and Entrepreneurship (Center ICE). Investing $5,000 and holding qualified individual investor status would create barrier to participation for most individual students, yet both the SIF and Center ICE recognized the value in involving students. Ultimately, CBSM’s Student Investment Fund placed an investment, funded entirely by privately raised funds, which allowed students to participate. The hands-on AAC experience aligned well with the mission of the Student Investment Fund to provide active and experiential learning for students, and Center ICE's objective to support the AV����̳n startup ecosystem.

Performing due diligence on an early-stage company teaches students a skillset that is in demand from in-state employers and that would be difficult to learn via textbook alone. It also exposes students to venture capital, a different type of investment that the traditional focus of the SIF, publicly traded stocks.

While some other universities have established venture capital funds, the scale and resources needed to create such a fund is large. Involving students in the AAC offers a similar experience at a smaller scale; putting less capital at risk and requiring fewer resources, including the financial aspect and time of staff/faculty.

“I hope to obtain a job in investing or finance in the future,” stated CBSM accounting major Dave Sauter. “The skills I learned during AAC will no doubt help me in that. Through the AAC I have met several motivated investors from around the state. It has opened my eyes to potential future opportunities and has motivated me to continue growing.”

Dave, Manuel, and Zach logged long hours, including weekly meetings with start-up companies and other investors, as part of the AAC process. The trio described their experience participating in the AAC:

What has been your biggest take away from participating in AAC?

MBA Student Manuel Beza: A broad variety of people from all different backgrounds were able to effectively contribute to the investment selection process. Everyone involved is there to learn and teach. The entire process is extremely accessible to new investors.

All three of you had previously participated in the Student Investment Fund, where you evaluated investments in (often large) publicly traded companies. How is due diligence different for a start-up compared to a large, mature company?

Zach Norum: Investing in a startup is far more personal and more reliant on qualitative than quantitative data. Personality and vibes are important aspects. Investors take on an advisory role in the company. We have influence on their future whether we invest or not, and investing in the companies creates a relationship. Understanding that relationship before the investment is incredibly important. Often the investor provides connections and resources to the company. It is important to ensure everything is a good fit.

Can you describe how your due diligence team worked and give us some details as to what the process was like?

Dave Sauter: We were assigned to different company through due diligence teams. I was working with three other investors to conduct due diligence on the start-up, Prismatext, this year’s winning company. As a due diligence team, we were tasked with determining the overall viability of the company and making a recommendation on a potential deal. During the process, we conducted regular meetings with the company to request information and investigate the founders themselves. Each member of the due diligence team had their own individual assignment. I was tasked to do a financial and business model review of the start-up. I had to analyze their projections and recognize biases in the information in order to make a fair recommendation.

Manuel Beza: The company that my team was working on was Evergreen Compliance LLC. The company develops compliance online research and safety management tools designed to help the oil and gas industry. These tools help the industry professionals improve pipeline integrity and safety
program implementation. Our team collaborated with the Evergreen team in gathering data needed to ensure we had a proper understanding of the company and its future potential. Data gathered included business model financial data, customer reviews, market analysis, and management strategy.

Are there aspects of this experience you think will benefit you professionally?

Manuel Beza: For me the biggest thing is learning the human-side of investing. We see so many companies through their financial reports but have no idea who their CEO is on a personal level. The AAC has allowed me to see companies through their founders, to see both the good and the bad sides of the companies. Having a more open perspective to companies and their people is one of the biggest takeaways for me. The ability to minimize narrow-mindedness when dealing with other professionals will help, regardless of the industry.