00:00:00:00 - 00:00:03:19
Speaker 2
If we can't be a board observer or we can't be on the board,

00:00:03:24 - 00:00:06:16
Speaker 2
we're not interested in being involved in that deal.

00:00:06:19 - 00:00:07:27
Speaker 2
how can we collectively

00:00:07:27 - 00:00:09:16
Speaker 2
build a small language model

00:00:09:19 - 00:00:13:23
Speaker 2
that we can all learn from all the deals that we've been involved in over the years?

00:00:13:28 - 00:00:15:27
Speaker 2
Think of how how powerful that could be.

00:00:15:29 - 00:00:18:17
Speaker 2
You know, you can ask a CFO

00:00:18:21 - 00:00:20:00
Speaker 2
what's our cash position,

00:00:20:04 - 00:00:26:20
Speaker 2
but it's a whole heck of a lot different than when you say, show me your bank statement.

00:00:26:22 - 00:00:38:09
Speaker 1
My guest today is Scott Jacobs, executive director of Kuka ventures, a Cincinnati, Ohio based investor group that has been engineering their angel investing process since 2000.

00:00:38:12 - 00:00:53:22
Speaker 1
In this episode, Scott breaks down his group's rigorous due diligence framework. Their unique Hybrid Fund Plus network model, and how they're actively using AI to match deals with member expertise. I hope you enjoy learning from Scott.

00:00:53:24 - 00:01:02:22
Speaker 1
As much as I.

00:01:02:24 - 00:01:07:10
Speaker 1
Scott, thank you for being with me today.

00:01:07:12 - 00:01:35:00
Speaker 1
Well, we are sitting here on day two of the Angel Capital Association Annual Summit in Westminster, Colorado, and it has been a blast so far. Scott, thank you for taking a few minutes to chat with me. I'm very excited to hear from you about the QCA journey, and this in particular is a really exciting season for Kuka because you guys just rebranded and I'd love to hear how that happened.

00:01:35:00 - 00:01:58:01
Speaker 1
Like why? Why rebrands? And maybe as part of a starting point, you could give me a quick background on Kuka and what's changed over time that now has led to this regret.

00:01:58:03 - 00:02:03:15
Speaker 2
That you.

00:02:03:17 - 00:02:14:05
Speaker 2
Were.

00:02:14:07 - 00:02:16:21
Speaker 1
The time to exit

00:02:16:23 - 00:02:21:10
Speaker 2
Tony Shipley, had worked there, previously in his career.

00:02:21:12 - 00:02:36:26
Speaker 2
And he, got together with four ex Stasi executives and founded Queen City Angels. And their original mission, at the time, was just giving back to

00:02:36:29 - 00:02:51:12
Speaker 2
Tony had, had a successful exit with his own enterprise software, internet of Things. Startup and, had a very successful exit. And, wanted to just get back his experience.

00:02:51:12 - 00:03:23:19
Speaker 2
And he had received capital from five venture capital firms. He had done mezzanine financing, and he had been through the entire process of M&A to sell his company. So his experience was really deep and wide. Where the other four executives didn't have that sort of broad sort of funding expertise. So, the group started out with five, members through to 19 members in the second year.

00:03:23:22 - 00:03:34:04
Speaker 2
And keep in mind, and this is really important as far as sort of the, the brand and the core of QCA. It was founded by five engineers.

00:03:34:06 - 00:03:35:18
Speaker 2
Super.

00:03:35:21 - 00:03:44:07
Speaker 2
what's interesting and cool about that is if, you know, engineers are very process oriented,

00:03:44:10 - 00:03:56:23
Speaker 2
constantly experimenting, what can be done differently? What are your lessons learned? Continuous improvement process, driving out the fatal flaws.

00:03:56:25 - 00:04:00:13
Speaker 2
And that has permeated the organization from day one.

00:04:00:15 - 00:04:10:05
Speaker 1
That is a recipe for extreme success or extreme pain, depending on your perspective.

00:04:10:07 - 00:04:36:26
Speaker 2
the organization made a number of, they learned a lot in the first few years. They put too much money into deals. And, and then around 2003, the state of Ohio actually put together a program, a very unique program where, they receive an anti-tobacco settlement money civil lawsuit where all the states received money.

00:04:36:28 - 00:05:05:20
Speaker 2
And what Ohio did was very unique. They put the money into a public, private organization called the Ohio Third Frontier. So it was $2.1 billion of the state of Ohio wanted to put to work in reviving the technology economy in the state of Ohio. So that was our first foray into, having funds. So we started out as a network group, and then we started little micro funds.

00:05:05:22 - 00:05:07:19
Speaker 2
In 2003.

00:05:07:22 - 00:05:32:26
Speaker 1
So just a pause. What's interesting to me about this story? And I think what is so special about Kuka is 2000. This is like the angel network concept barely existed by this point in time. Like the best I've been told. The very first Angel network with Band of Angels in 1995. So this is just a few short.

00:05:32:28 - 00:05:34:03
Speaker 1
What's the obviously.

00:05:34:05 - 00:05:37:01
Speaker 2
When there's obviously.

00:05:37:04 - 00:05:58:28
Speaker 1
Okay. Well 94, 95, mid 90s let's say is when Angel networks as a concept got started. This is very shortly after this. And so that bias towards experimentation from the beginning is, I think, crucial to your point to this story, and I imagine has deeply shaped how QCA has evolved.

00:05:59:01 - 00:06:27:25
Speaker 2
Oh, yeah. Absolutely. Absolutely. So, and what we did is, is very typical of what I'm talking about. We didn't know what the playbook was. And so we went out and we did a smart practice study of existing angel groups in different parts of the country. So we talked to the Harbor Angels in Boston. We talked to angel groups on the West Coast.

00:06:27:27 - 00:06:51:22
Speaker 2
And, I wasn't part of the group at the time, but I'm sure they talked to Band of Angels and TCA ventures started. Shortly after. Band of Angels did, we talked to, some groups in, the Research Triangle. And so what we found then, that we find today is it's a very collegial group of early stage investors.

00:06:51:23 - 00:07:11:10
Speaker 2
We're all learning from one another, and we're all borrowing smart practices from one another. And

00:07:11:12 - 00:07:22:14
Speaker 2
I think that's.

00:07:22:16 - 00:07:52:26
Speaker 2
So, we like to think that we're, willing and able to, to, to to tap into the smartest practices of these groups that are there all smart groups. We all we all don't operate in the same fashion, but we all have the same goals and we can all learn from one. And so that has been a big part of the core of our existence is around education.

00:07:52:29 - 00:08:04:17
Speaker 2
Our North Star is entrepreneurs. But from the very beginning, what we found was entrepreneurs weren't able to make legitimate pitches to angel investors.

00:08:04:20 - 00:08:06:09
Speaker 1
Say more. Why? Why is that?

00:08:06:12 - 00:08:11:18
Speaker 2
They didn't know the playbook. They don't they did not know when angel investors were looking for.

00:08:11:21 - 00:08:32:29
Speaker 2
And we we felt compelled to help entrepreneurs get better at that. And so in 2001, we started an entrepreneur bootcamp. This will be our 26th year running that program. A two day sort of pre accelerator program. 13 sessions over two days.

00:08:33:02 - 00:08:41:01
Speaker 2
And we cover everything that an early stage, an early founder needs to know

00:08:41:04 - 00:08:56:04
Speaker 1
And you've been running this for 25 years. I mean, this is kind of sexy. Now. That is incredible. I mean, this is the sexy concept. Now, entrepreneurship kind of hit the mainstream in a lot of ways. You guys are doing this the way before. It was cool.

00:08:56:07 - 00:09:02:03
Speaker 2
Yeah. And, you know, back in the early days, we were we were espousing writing a business plan.

00:09:02:06 - 00:09:04:14
Speaker 1
Yeah.

00:09:04:17 - 00:09:06:04
Speaker 1
Don't do that. If you're listening to this.

00:09:06:06 - 00:09:27:12
Speaker 2
we still think that a founder and anybody that starting a business should write a business plan. But nowadays, you know, plugging into AI and outcomes, right. But the point is, you have to be thinking about every aspect of your business when you're starting it, and you want to start it the right way.

00:09:27:13 - 00:09:53:23
Speaker 2
And so like the first session of the boot camp is do you even have a product or service? Have you done the early customer discovery and research on the problem to be solved? Focus on the problem, not the solution. In that session, our speaker, a long time Cuca fan. She goes over the CB insights top reasons that startups fail.

00:09:53:26 - 00:10:07:19
Speaker 2
I.

00:10:07:21 - 00:10:18:21
Speaker 2
Do we have the right team working on the problem? We're betting on the jockey not the horse. But we felt that we needed to create really a two sided marketplace.

00:10:18:28 - 00:10:51:23
Speaker 2
We needed to train founders on how to pitch funders, and we needed to pitch and work with funders on how to understand investing in early stages. And so that has been a part of our organization from the very beginning, and it's still a part of our organization now. You know, how do we use the best practices? And I use and, the culmination of that, when I came on board, I celebrated my, my 12th year just last week.

00:10:52:00 - 00:10:53:02
Speaker 1
Congratulations.

00:10:53:04 - 00:11:20:26
Speaker 2
Thank you. When I started, Cuca Queen City Angels, had a, a line drawings, of of the, the landscape of the waterfront of Cincinnati on the Ohio River. And one of the things I pointed out, I went to, the ACA summit in 2014. I wasn't even officially an employee yet, and I pointed it out to Tony Shipley.

00:11:20:26 - 00:11:48:17
Speaker 2
I said, hey, you may notice that the line drawing is about ten years old and there are new buildings along the waterfront. And I said, it may be time for us to take a look at that. Well, what that led to was we did a strategic planning process in 2015 where we interviewed, we did a 360 research project and interviewed everybody in the ecosystem.

00:11:48:20 - 00:12:19:12
Speaker 2
We interviewed founders. We had funded, founders we hadn't funded. We interviewed ecosystem players. We interviewed members. We interviewed colleges and universities. We interviewed sponsors, and we gathered up all this information and the and the the outcome from that was we created three standing committees. That we felt had to, address some of the issues that came up for Queen City Angels.

00:12:19:12 - 00:12:57:21
Speaker 2
One of the primary issues that came up, was related to branding and marketing and awareness. We had been around long enough at that point that people had heard our name, but they really didn't know our mission. And so we embarked on a rebranding at that point where we really had to freshen up the brand. And what we did is we went out and did an assessment with our members over and above what the yearly membership dues are, to embark on hiring a professional design firm to do all of the research on

00:12:57:24 - 00:13:01:21
Speaker 2
what icons we should use as part of the logo.

00:13:01:23 - 00:13:14:11
Speaker 2
And, and, what the tagline should be. So we noticed that the design firm did a study, and really, nobody, owned the color purple.

00:13:14:13 - 00:13:35:20
Speaker 2
we felt like that was something that we could own. And that was that became part of the colors theme for the logo. If you look at the logo today, the, the evolution of it, these, little lines under here represent the river that

00:13:35:22 - 00:13:38:08
Speaker 2
the, Cincinnati and on the Ohio River.

00:13:38:16 - 00:13:43:11
Speaker 2
But that also represented angel wings.

00:13:43:13 - 00:14:04:07
Speaker 2
The little icon above it represents the buildings along the river, but it also represents the founder that's in the middle. And and the mentors and angel investors that are around the founder. So there's there was great iconography. That was created as part of the logo.

00:14:04:10 - 00:14:14:04
Speaker 1
So this was all in 2015 and the rebrand efforts. 16. And this was a rebrand from Queen City Angels to.

00:14:14:07 - 00:14:15:09
Speaker 2
Okay.

00:14:15:12 - 00:14:40:21
Speaker 2
And the other thing that we did was we. So we created a standing committee. That was the marketing committee. We had another committee that was focused on Dr., that now has been rolled into the marketing committee. So the marketing committee is now marketing and member engagement, and then the third committee, it's very important was our Standards and Practices Committee.

00:14:40:23 - 00:15:13:13
Speaker 2
So you go back to what I was, what I mentioned earlier, where I said process improvement, continuous improvement. We felt like we had to have a standards and Practices committee that analyzed everything that we were doing. Now, if you move forward, we had a couple of chairpersons for that committee in 2022. 2020, we had a new standards chairman that came on board, and he decided to do a smart practices study amongst investor groups around the country

00:15:13:15 - 00:15:20:02
Speaker 1
Repeat the founding study essentially in 2020. So 20 years later. But do it again.

00:15:20:04 - 00:15:49:17
Speaker 2
And he gathered up 30 of our members and over a year we gathered up all the smartest practices. That's when we borrowed the the, exit strategy canvas. And the culmination of that is what we consider to be our operations manual, our playbook. It's called our Standards and Practices Guide. There really is no other document like that in in this space.

00:15:49:20 - 00:16:17:00
Speaker 1
Which just. I mean, that document, this is a book. I mean, it's a monster, you guys. So I, I saw this originally, and in a LinkedIn post, there's the photo of the book with some stories around it. And I was like, what is it that no angel group has, has processes that are that well defined, articulated. I mean, just incredible to have that little level of detail and thoughtfulness around each piece of the puzzle.

00:16:17:02 - 00:16:42:25
Speaker 2
it is the place that I take every new member to when we onboard new members and I tell them we are a learn by doing group. And this is a big part of our formula for member engagement. We onboard them by taking them to Standards and Practices Guide and say this is your book knowledge. If you want to learn how to make money in this asset class, you read this.

00:16:42:25 - 00:17:03:19
Speaker 2
The Standards and Practices Guide.

00:17:03:22 - 00:17:07:27
Speaker 2
Go back to the guide because there are definitions in there.

00:17:07:29 - 00:17:42:14
Speaker 2
There is links to webinars done by the ACA. There are there's recommended reading. It is a treasure trove of a document. But if you ever have a question about anything that goes on in the group, go back to the guide because it's in there that's rewritten. There's a new version written on it every single year. Last year or chairman of that committee wrote a primer on six of the AI platforms that are being used and what they're primarily being useful.

00:17:42:16 - 00:17:50:29
Speaker 2
So that is a document that is that is used by our group to help understand and build in consistency.

00:17:51:01 - 00:17:51:17
Speaker 2


00:17:51:22 - 00:18:12:08
Speaker 2
One of the things that we did, we look at seven areas when we do due diligence. And this is common amongst angel investor groups or early stage groups, things like competition, IP sales and marketing, the management team. But we look at four subcategories within those seven larger categories.

00:18:12:11 - 00:18:36:22
Speaker 2
So we're looking at 28 areas that we're scoring. And that rule rolls up in an overall score. When we've done the due diligence. What's different about us is we went in the Standards and Practices Committee, went in and they wrote out a definition that's a 1 to 5 scale. What a one and a three, four and five is for every one of those 28 variables.

00:18:36:24 - 00:19:12:10
Speaker 2
So I've had members say to me, I've never been on the due diligence team, but boy, was it easy to be able to score because I had those definitions in front of me. So

00:19:12:13 - 00:19:34:03
Speaker 2
He left P&G. He had worked in the early ventures, area P&G and I met with him later and, he was telling me, hey, you know, when I left AG, I went to this entrepreneur boot camp and I was like, Steve, you don't realize, but but that was our

00:19:34:05 - 00:19:42:13
Speaker 2
So. And then the team later went through our morning mentoring program, which is another program that we've been running for 20 years.

00:19:42:15 - 00:20:09:16
Speaker 2
So we've we've seen founders that have gone through some of our educational programs. But now I've gotten to a stage where they've raised over $30 million in that particular deal. Well, Angel, an angel investor group, still typically leads series B rounds. We have been leading series eight rounds now, and so we've really moved a little bit down stream.

00:20:09:18 - 00:20:48:08
Speaker 2
And we just determined that, at this point, and the stage in which we're investing that it was time for, a name change. There there is a misperception with some groups about Angel investors. Unfortunately, this conference is an example of people that are focused on being professional angel investors. Unfortunately, there are institutional investor groups, family offices and others that hear the term angel investor.

00:20:48:10 - 00:20:56:04
Speaker 2
And they they immediately, think that those are just two foursomes on a golf course.

00:20:56:07 - 00:21:16:06
Speaker 2
The groups here are not that way. They have a process. They've got dual criteria. They're professionally run. But we wanted to move away from, the fear that that people would perceive us for really knowing who we are and what we do.

00:21:16:08 - 00:21:29:13
Speaker 2
That we were two foursomes on a golf course. So we figured there was equity in the QCA. Part of that's part of our name now, because people were sure the Queen, city angels, the QCA anyway.

00:21:29:18 - 00:21:39:19
Speaker 1
Yeah.

00:21:39:22 - 00:21:44:27
Speaker 1
The rebranding is no joke. I mean, it is a simple, not easy.

00:21:45:00 - 00:22:04:13
Speaker 2
This is an iterative process. So we didn't go through the same process when we did. When we rebranded and created the new logo. But we talked to TCA ventures because they went from West Coast Angels to TCA. We talked to North Coast because now they're North Coast ventures, and they used to be North Coast Angels.

00:22:04:15 - 00:22:09:15
Speaker 2
And, we asked them how they went about doing, their process.

00:22:09:20 - 00:22:24:17
Speaker 1
Of course. And this whole time you've had these fund mechanisms kind of on the side as well as I understand, back in 20, a 2003 image. And when this, the third 20. Yeah.

00:22:24:20 - 00:22:28:21
Speaker 1
Wow.

00:22:28:23 - 00:22:48:09
Speaker 1
Totally. But I think it provides so much value to the members that are investing directly because of a lot of synergies that you get from the capacity to participate in the instant diversification through the fund and more. I'm curious how that interaction has, in your opinion, played out and provided value to the members of the group.

00:22:48:11 - 00:23:14:00
Speaker 2
Well, it provides value to to everybody involved. So with our process, because we're investing out of a fund, when a founder comes to us and wants to seek investment, we can say, if you go through our due diligence process and it's very rigorous and it's going to be painful, painful, I'm telling you that upfront you'll learn from the process.

00:23:14:03 - 00:23:33:22
Speaker 2
We'll have founders that will come to us after the process and say, boy, we learned some things that we really didn't know about our business after we went through your process. I just talked to one of the founding members of one of our portfolio companies, and he said, we uncovered that we weren't paying sales tax.

00:23:33:25 - 00:23:35:04
Speaker 2
Oh.

00:23:35:07 - 00:23:57:27
Speaker 2
we fix, you know, we fix that problem for that. But that was uncovered in the due diligence process. So what what we have found is that when founders come to us, we can say to them, we're going to write you a check out of our fund that's going to be in the range of 250 to $500,000. So that's a guarantee.

00:23:58:00 - 00:24:14:16
Speaker 2
What we've learned historically is that since we're a hybrid and we do have fund investment as our lead, the members, the right sidecar checks, typically we've seen that that's two checks. What the fund invests.

00:24:14:19 - 00:24:23:25
Speaker 2
So if you putting $250,000 doing the quick math, now you're putting 300 three quarters of $1 million into a deal. That's a sizable check.

00:24:23:28 - 00:24:26:23
Speaker 1
Met is some angel groups. That's what they do in a year.

00:24:27:00 - 00:25:01:04
Speaker 2
Well, and and you know what what that does for us. And we've presented on this in the 2024, summit in Columbus, we did a study on exits of seven, investor groups, 100 exits. And we asked them what were the primary drivers for success and failure for those exits. And what was interesting about that was the three factors were the same for both.

00:25:01:06 - 00:25:05:00
Speaker 2
So I'll ask you what what do you think the three factors were?

00:25:05:03 - 00:25:08:26
Speaker 1
Oh, I couldn't I couldn't begin to guess. Oh, man.

00:25:09:03 - 00:25:33:18
Speaker 2
Okay. So I'll give you the answer. Timing. Timing could be the timing of the investment. Is the technology to early or to late timing of the exit. And if you think about I was could be looking at the trends going on in the M&A activity. What's going on in that sector?

00:25:33:20 - 00:25:40:20
Speaker 2
The second area was the management team, and the third was board governance.

00:25:40:23 - 00:25:55:00
Speaker 2
So in our evolution of how we look at deals now, we've found that to be true, is that I will not look at a deal unless we have some sort of line of sight to support governance activity.

00:25:55:03 - 00:26:02:19
Speaker 2
If we can't be a board observer or we can't be on the board, we're not interested in being involved in that deal.

00:26:02:22 - 00:26:37:03
Speaker 2
We feel with the expertise of our now 225 members, we bring more to the table than just writing the check. And we found that to be true. And we just went through a due diligence process with an AI, technology that's looking to help the answer engine optimization that's beginning to overtake search engine optimization using AI, where the founders said, look, you guys were incredible.

00:26:37:03 - 00:27:01:14
Speaker 2
We want you to lead our deal, but we want some of your members to be on our board of advisors.

00:27:01:16 - 00:27:04:16
Speaker 2
Yeah.

00:27:04:18 - 00:27:30:13
Speaker 1
Incredible. So, Scott, I'd be remiss if I didn't ask, given that you have 26 years of engineering rigor on what are the best practices. Tell me a few more things that you all have discovered in your iterations that you feel like people aren't talking about enough, that angels, individually and networks holistically, tend to to miss that you guys have discovered during your iterative processes.

00:27:30:15 - 00:28:17:28
Speaker 2
Yeah, we we invested in this deal a couple years, three years ago, where, we came in as one of the last investors and, there were some information that we didn't look at closely enough. And, and one of the things that we did not hear about when we were going through the due diligence for this particular company, was that one of the board members for that company, prior to our getting involved in due diligence, had made an offer to buy the company from his investor group that he represented.

00:28:18:01 - 00:28:56:18
Speaker 2
Looking back on that, that was a really a an early signal that we had a hostile situation going on on that board because his offer was well below what we thought the market rate valuation would be for that company. Fast forward 6 to 9 months later, hostile takeover by that particular investor group. We think some, some unsavory things were happened by the management team that had gotten hired by that bad capital provider.

00:28:56:21 - 00:29:17:24
Speaker 2
And it was a hard lesson for our group.

00:29:17:27 - 00:29:19:28
Speaker 2
Yes.

00:29:20:00 - 00:29:39:29
Speaker 1
Yeah. Well, just to put a pin in that first. Thank you for sharing that, because it's super easy and fun to talk about the winners and what worked out great. It's really hard to get on a podcast and talk about the misses. Articulate for me like, what were those takeaways? Because it that is an important piece of information.

00:29:40:01 - 00:29:48:18
Speaker 1
It's somewhat obscure and the process. And so now I imagine you have some new diligence questions. Articulate for me what the takeaways were from that particular experience.

00:29:48:25 - 00:30:23:29
Speaker 2
Well, we found that the management team was not being exactly completely transparent about the financials and the financial position of the company. That was probably poor board oversight. And therein lies the importance of strong board governance. Are they asking, really? Pointed questions to the management team and double checking the answers?

00:30:24:01 - 00:30:35:06
Speaker 2
You know, you can ask a CFO what's our cash position, but it's a whole heck of a lot different than when you say, show me your bank statement.

00:30:35:09 - 00:30:48:07
Speaker 2
So that's the level of rigor that needs to be done by boards to make sure that they're double checking that the answers are accurate, truthful, and transparent.

00:30:48:09 - 00:30:51:06
Speaker 2
Company ran itself out of

00:30:51:09 - 00:31:17:26
Speaker 2
and put put itself in a scenario where, they had to accept a hostile offer and that that, that worked out poorly for all the other investors in the group and in that deal. And so it's a it's a that's a that was a very difficult learning lesson for us. And but we've seen, a lot of great successes over the years.

00:31:17:29 - 00:31:22:10
Speaker 2
In 2023, we had two exits. Two happened on one day.

00:31:22:13 - 00:31:31:15
Speaker 1
No kidding.

00:31:31:17 - 00:31:32:29
Speaker 1
Yeah, that's a good day.

00:31:33:02 - 00:31:47:04
Speaker 2
But what what we have found, and I think we're seeing this trend nationally now is that, first of all, not all not all the the opportunities are on the west and the East Coast.

00:31:47:06 - 00:31:59:27
Speaker 2
On that particular day, we had an exit for a SAS business that was related to the supply chain, vertical. And it was a $29 million exit.

00:32:00:00 - 00:32:15:04
Speaker 2
And we had a high IRR on that deal, and it was about 8 to 9 x exit. So you know what? What we have found is that we're not looking for unicorns.

00:32:15:06 - 00:32:25:17
Speaker 2
You know, we we you know, in a SAS business you can have a 29 or a 50 or $80 million exit and everybody can make a lot of money on that.

00:32:25:19 - 00:32:32:28
Speaker 2
So you can you can make a lot of money hitting doubles and not getting up there looking to hit a home run at a grand slam.

00:32:33:00 - 00:32:46:11
Speaker 1
Yeah, that's one of the things that's so interesting to me about the space is the variety of strategies that can work really effectively in the space. The as long as you're systematic and intentional about it and you know that that's what you're doing.

00:32:46:14 - 00:33:08:00
Speaker 2
Well, those are some practice practices guide and the rigor that we have added into our due diligence process has proven out in the in the last two funds. In our fifth fund, we invested in 20 companies. And, two of those companies failed,

00:33:08:03 - 00:33:17:29
Speaker 2
but we still have 13 companies that are operating out of that fund. And, and, we've returned 92% of the capital.

00:33:18:01 - 00:33:29:03
Speaker 2
So if you do the math there we have we have 13 shots on goal to get, you know, well above A1X on that farm.

00:33:29:05 - 00:33:31:00
Speaker 1
Not a bad spot to be.

00:33:31:02 - 00:33:39:21
Speaker 2
And the same has happened, with even better results in our sixth one. And now we're investing out of our seventh.

00:33:39:23 - 00:34:05:13
Speaker 2
Now, one of the other things I wanted to talk about, if you don't mind, is in our sixth fund. What what was different about that fund versus the first five funds was we had been a co investor with the state and our first five funds

00:34:05:15 - 00:34:14:16
Speaker 1
All of this through fund six was in Ohio. Three fun. Five was was in Ohio. Wow.

00:34:14:19 - 00:34:17:16
Speaker 2
were with companies located in Ohio. It's

00:34:17:18 - 00:34:18:13
Speaker 1
Okay.

00:34:18:16 - 00:34:21:18
Speaker 2
now we get to invest as a network anywhere.

00:34:21:20 - 00:34:22:15
Speaker 1
I see, I see.

00:34:22:21 - 00:34:37:22
Speaker 2
So if it's Indiana, Kentucky, and we were mostly regional at that point, but in fund six when we started that fund, the state did not have an RFP to put money into to our group or other groups like ours.

00:34:37:25 - 00:34:47:16
Speaker 2
So our investment thesis changed, and so that that allowed us to invest out of the fund anywhere within the United States.

00:34:47:19 - 00:35:04:01
Speaker 2
So that opens up huge opportunity. But now that's a huge challenge, right? So where am I going to find the deals? That's my job as executive director. I'm overseeing the top of the funnel. And then on the other end of it, I'm syndicating the deals.

00:35:04:01 - 00:35:35:14
Speaker 2
After we have decided to lead a deal and go to out and find additional Co-investors. So we were one of the founding members of the Angel Capital Association, and we have gotten to know a lot of angel groups through our relationships that we built over 20 years. We look, we had a little roundtable dinner last night with a number of experienced angel investor groups just to talk about topics that we're all faced with these days.

00:35:35:16 - 00:36:05:29
Speaker 2
We talked about secondaries and we talked about, whether or not, angel groups are looking at taking a small sliver of a deal that can be used for running their groups and other issues that we're all faced with. And, we we just shared a lot of great ideas. And what came out of that was we want to have a continued group discussion amongst some of the the, well renowned longer standing groups.

00:36:06:03 - 00:36:30:02
Speaker 2
And so we're going to continue to, to, to be use that continuous improvement process. And so, now we invest everywhere in the country and I can cherry pick the best deals, with our co-investors and come in at a right stage and a right and do the right timing. But, I can source deals, from the

00:36:30:08 - 00:36:56:03
Speaker 1
The world is your oyster at this point. Wow. So tell me. I'm actually really curious what is happening right now that you're excited about. Intrigued about that you feel like isn't getting talked about enough in the angel world? You were in that meeting last night. I'd love to hear your takeaways from that, or from the event overall that you feel like a really interesting insights or things that we should be thinking about.

00:36:56:06 - 00:36:57:15
Speaker 1
Let's talk about I.

00:36:57:17 - 00:37:06:04
Speaker 2
you know, my job before I came on board at okay, was, I wrote marketing plans for companies,

00:37:06:07 - 00:37:22:02
Speaker 2
and I used, my own sort of proprietary blend of doing, discovery internally, interviewing stakeholders. But I use secondary and primary research and competitive intelligence to help write the marketing plan.

00:37:22:02 - 00:37:49:22
Speaker 2
And what could I have done with, with a, the power of I to do secondary data research? I mean, all that information is at your fingertips. Think about how our, our, our angel groups can be using AI to look at what trends are going on in an industry, what's going on with the competitors for any of the companies that we're funding?

00:37:49:24 - 00:38:27:23
Speaker 2
All these different uses of AI are just absolutely incredible. You talk about force multipliers in a group, you know, how much more can you do with much, fewer resources? The the deal that we're, we recommended to our, investors on Monday, every one of the 12 members of that due diligence team, we're using extensive research on competitors and what's going on in that particular industry vertical.

00:38:27:26 - 00:38:30:07
Speaker 2
It's just so incredibly exciting.

00:38:30:10 - 00:38:36:13
Speaker 2
And it's almost a question that you have to ask who's training? When you talk to a company, how are you using

00:38:36:16 - 00:38:38:05
Speaker 2


00:38:38:07 - 00:39:00:26
Speaker 2
that's a huge red flag. So I'm just incredibly excited about the advances that have been made there. And it's just so cool. You know, to look at how, you know, you can use Grok or Claude or ChatGPT, perplexity and all these different platforms.

00:39:00:28 - 00:39:12:01
Speaker 2
And that's, that's kind of the next stage of what we're looking at doing. So as executive director, what I'm trying to do, and we have an AI task force.

00:39:12:03 - 00:39:27:02
Speaker 2
we are using, statements, AI statements on how and when we use AI. So we're very transparent with founders about that. We're going to use a statement like that on our website.

00:39:27:04 - 00:39:37:01
Speaker 2
But we also have a usage statement for our members. We will put that in our member handbook where we encourage you use AI, but here's how we want you to use it.

00:39:37:04 - 00:40:01:28
Speaker 1
I think that is so important and something that I think angel groups are really struggling to be thoughtful about. In my experience, working with many is developing and formulating that AI policy, along with every other business in this in world today is everyone's having to articulate this. So I, I love that you're doing that aggressively for members to help them understand how it fits.

00:40:02:00 - 00:40:19:23
Speaker 2
Well yeah. You know, we never take for granted any of the output. We brought in an expert that, trained 2000 people at P&G on how to how to prompt and how to use AI. And, you know, we paid for him to come in and do a session with our

00:40:19:26 - 00:40:21:00
Speaker 1
Wow.

00:40:21:03 - 00:40:28:13
Speaker 2
And so we we don't take for granted in the output that we're getting from AI site sources.

00:40:28:15 - 00:40:58:23
Speaker 2
Cross reference other AI platforms to make sure that you're getting a similar output. But the power is just incredible. Now, my job, I think, is we we have developed, Microsoft tools, we're using AI and we're using within our platform. We're using the AI. So we use low code, no code, Microsoft open source tools to do our deal flow platform.

00:40:58:26 - 00:41:27:23
Speaker 2
So we created what we call our deal hub. And at the same time we created a member hub. So we have a bio page for each one of our members. But we have embedded in that skills, expertise and experience. So now when we get a funding application in and we want to screen that particular company, I have a prompt library that says what skills, expertise, and experience are required to look at this particular deal?

00:41:27:25 - 00:42:04:22
Speaker 2
ChatGPT is and injected into our platform. It will look at the answers from the funding application and say, this is an AI deal. You need expertise in AI, you need expertise and enterprise software, blah blah blah. It'll give the requirements. It'll go to the external world and look at what needs to be, used. It'll query our member database, and that's a recommendation engine for the top ten members that have the most relevant experience.

00:42:04:24 - 00:42:17:09
Speaker 1
Yeah, right. Because then Scott doesn't have to crawl around and go. Who do I know that is part of the group that know something about this?

00:42:17:11 - 00:42:38:25
Speaker 2
And so, one of our members is embedded in there in the entrepreneurship program. And he said, well, you know, how many of our members are alone? And I thought we had 6 or 8. I could go into that member hub and just put Miami University because it's got all the the universities that that are members.

00:42:38:27 - 00:42:41:18
Speaker 2
And I found out we had over 20.

00:42:41:20 - 00:43:04:09
Speaker 2
And so all those people we can help get involved in the programs of Miami University. So the the power of it is phenomenal. But back to the AI part. So our members were using AI in the last due diligence process. We were we were going through. What's important for me to try to enable is I want to encourage our members to be doing that.

00:43:04:09 - 00:43:44:15
Speaker 2
I work inside our platform because if they're going offline to do that, even if they turn the learning off, I'm not learning. I mean, we have incredibly smart members of our groups, too. I mean, the the power or the aggregate power of the ACA is incredible. If you look at skills, experience, expertise, but if I'm not capturing what their prompt is and how they are engaging in the AI, I can't keep that inside our platform and inside our environment so that we can learn from.

00:43:44:17 - 00:43:57:02
Speaker 2
So I think the bigger challenge for the angel groups and the way that we can collaborate, and maybe this is a topic that we do with a little or a little roundtable, is

00:43:57:05 - 00:44:08:07
Speaker 2
how can we collectively build a small language model that we can all learn from all the deals that we've been involved in over the years? Think of how how powerful that could be.

00:44:08:09 - 00:44:10:02
Speaker 1
That is an interesting project.

00:44:10:05 - 00:44:29:27
Speaker 2
it's a bag, I admit. But, you know, Moore's Law is going to come into play one day and we need to be positioned where we can index, organize, create data, lake houses, where we can put all our data in there and we can all learn from our own data.

00:44:29:29 - 00:44:38:03
Speaker 1
Well, Scott, I think that is a great place to pin. Lots to look forward to in the angel space. Thank you for taking some time to chat with me.

00:44:38:06 - 00:44:43:06
Speaker 2
Well, thank you for having me. I really enjoyed it.

00:44:43:09 - 00:44:45:24
Speaker 1
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