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Dec. 19, 2018
Falls Angel Fund has quietly amassed angel investments in several up-and-coming businesses in South Dakota and the surrounding region.
The fund was formed in 2016 through the South Dakota Enterprise Institute. Here’s a look at some of its recent investments.
Founded in Rapid City by students from the South Dakota School of Mines and Technology, Hutchinson produces energy-efficient speakers and subwoofers for the car audio market.
“We were excited about their unique technology and early traction,” said Matt Paulson, chair of the Falls Angel Fund.
A group of friends walked into a commercial kitchen in Minneapolis in 2012 with the goal of making a better granola bar. It led to Nomi Snacks, a refrigerated snack bar available in regional grocery stores, including Target in Sioux Falls.
“We think their bars are delicious and are excited to watch the company expand,” Paulson said.
Falls Angel Fund’s most recent investment, Oska Wellness, produces an electromagnetic pain-relief device.
“We were excited about a trial partnership the company has with a local health care system and that the company received funding from other notable investors,” Paulson said.
Based in North Dakota, WalkSmart produces an internet of things device that monitors the movement activity of at-risk senior citizens while protecting their privacy.
“We are excited about the founder and his prospects for future success,” Paulson said.
While specific investments aren’t disclosed, they generally range from $50,000 to $150,000, Paulson said.
“We do sometimes team up with other South Dakota angel funds to make a larger investment in an in-state company. For example, Black Hills Regional Angel Fund, Hub City Capital and Falls Angel Fund recently worked together on a deal for Hutchinson Audio,” he said.
The fund’s first investment, educational app company Montessorium of Sioux Falls, ended in an acquisition by a California company earlier this year.
“We all learned that achieving significant market share in the app store is incredibly difficult, and unfortunately Montessorium was never able to the gain critical mass of downloads needed to become self-sustainable,” Paulson said. “Their recent acquisition was the best move for both the company and its investors, but Falls Angel Fund is not expecting to see a positive return on investment when the dust clears.”
Such is the story for angel investors at times, though. A critical piece of the entrepreneurial funding ecosystem, they generally offer smaller dollar amounts knowing risks are larger.
Falls Angel Fund limits its investments to companies that are located in South Dakota and surrounding states.
“Companies we invest in tend to have achieved product-market fit and at least have their first customer,” Paulson said. “We focus on companies that are looking to scale nationally because local businesses generally cannot scale to a level where our potential risk-adjusted return makes sense. We also focus heavily on the quality of the entrepreneur, the knowledge of their industry and their past track records.”
The pipeline of potential investments is “uneven,” he said, noting while few applications for funding came in over the summer, he recently was approached by five companies looking for funding at an event.
“We currently have about four companies in the pipeline that we are actively having discussions with, including one existing portfolio company that is seeking follow-on funding,” Paulson said.
Falls Angel Fund initially raised $1.35 million for its fund. A subset of Falls Angel Fund members also created a side fund called FAF Aquatech Investors LLC to invest $1 million into Prairie Aquatech Inc. There is approximately $300,000 in capital left in the initial fund to invest.
“After the completion of the current fund, The Enterprise Institute staff will begin laying the groundwork for a second fund,” Paulson said.
The availability of angel fund capital should help dispel some notions that South Dakota is a hard place for startups to raise money, he added.
“I am not sure that this reputation is justified. We have five active angel funds in the state. There are numerous venture capital funds in the region that are actively seeking deal flow in South Dakota that I have communicated with. The state offers generous grant and loan opportunities through proof-of-concept funds, REDI funds and other programs. South Dakota business owners can get research grants through the SBIR and STTR programs operated by the SBA,” he said.
“Capital exists for startups looking to raise money. Unfortunately, we don’t have many examples of what a fundable company looks like. If a shortage exists, it probably exists more on the startup side than the capital side.”
Think South Dakota is a hard place for startups to find funding? Falls Angel Fund’s recent investments suggest otherwise.