0:00:00 - (Josh Bartels): This year we only had 6% membership churn, which in the last couple of years has been anywhere from 15 to 20% membership churn. When everyone walks in the room, there's no hierarchy. People think them they're better than the other. And so I think the culture is a super interesting piece that I've heard our previous directors, but then also our board mention where it's super interesting to see everyone's interested in startups, Everyone wants to invest and participate, no matter who's sitting next to each other.

0:00:30 - (Andrew Kazlow): Welcome to the Diligent observer, where we help angel investors see what most miss. I'm your host, Andrew, and every week we explore what works, what doesn't, and why through conversations with experienced startup investors and operators. My guest today is Josh Bartels, executive director of Nebraska Angels, one of the top five most active angel networks in the country, based on the latest Angel Capital association reporting.

0:00:53 - (Andrew Kazlow): Josh is also the founder of Gather, a portfolio management tool that's specifically built for early stage investors. In this episode, we cover what keeps Churn low in an angel group, why Midwest investor networks tend to collaborate more naturally than compete. And we get a profile of some of the most well known names across the Nebraska startup scene. I hope you enjoy learning from Josh

0:01:16 - (Andrew Kazlow): as much as I did. Josh, thank you for being with me today.

0:01:27 - (Josh Bartels): Yeah, thanks for having me. Thanks for the invite.

0:01:30 - (Andrew Kazlow): So I gotta start with my classic first question. Josh, what are you excited about right now?

0:01:35 - (Josh Bartels): Super cool to see these AI companies being built and coming through our process, but then also raising funds from other groups as well. So, Rask Angels, we've seen a number of AI native or AI enabled software companies that have pitched raised money. So I'm curious to see where that all goes in the future and kind of how that all shakes out later down the road.

0:01:59 - (Andrew Kazlow): Love it. Yeah, I think that's the macro excitement of the season, we could say. What's interesting to me has been that there's almost no such thing as an AI company anymore. It's just companies and the way that they integrate AI is more of the question. And so I'm curious in your perspective, just over the last few years at Nebraska Angels, how you guys have seen sort of that shift from AI company being like the pitch to now just AI being a part of every pitch. Would you say that that's true in your experience?

0:02:32 - (Josh Bartels): Yeah, yeah, I agree. Well, we've been around since 2006, so we've seen a lot of software companies come through and now they are putting the word AI into their businesses. But Then also building out features that are tailored toward their customers using AI, if that's as minimal as just a chatbot in their platform, all the way to truly connecting all the dots and from Gmail to Outlook to their tools to be able to pull context into their platform.

0:03:05 - (Josh Bartels): So it's an interesting spot to one raising money to see these types of software multiples go down, but these AI multiples go up on that piece of it. But then also like the customer side, super interesting as well. If you have a customer as a startup or a company that isn't really into the AI thing yet, then you have to be careful of kind of how you build for them and not go too far over your skis where they don't want to use your platform anymore. So it's. I think it's a balance between the investor push and pull toward AI, but then also kind of what your customers want as well.

0:03:43 - (Andrew Kazlow): Just before we move on, is there a specific story or example that you're pulling from here where you saw somebody get too far ahead of their skis?

0:03:53 - (Josh Bartels): I don't think so. Not that comes to mind. But just seeing those software companies really implement AI into their operations on the back end for their startup, but then also on the front end for, for the user to, to use and to, to work with. I think some industries are more prone to innovation than others. Like I think one good example is venture funds. I think they are pretty innovative because they do see each of their companies building with these tools and so they're more prone to build with them as well.

0:04:29 - (Josh Bartels): Compared to maybe manufacturing is, maybe it's not a great example, but they're not as in tune of what the edge of innovation is for these AI models or LLMs or products. So they maybe want a little more diligence or proof of concept before jumping into these, these tools.

0:04:49 - (Andrew Kazlow): Yep. Love it. So let's talk about Nebraska Angels. Nebraska is not what I think most when we think about startup investing go to as the hub. And yet your community has consistently shown up in the Angel Capital Association's annual reporting as one of the top like 5 most active investor networks in the country. Tell me about Nebraska Angels. Like how is that happening? Give me the story and maybe how you got involved specifically.

0:05:23 - (Josh Bartels): Yeah, yeah. So Nebraska Angels is established in 2006. So it's actually our 20th year anniversary this year in August. So right around the corner, which is super exciting, started off with 10 members that all were interested in venture backed startups or startups in general because they've built their own businesses. They wanted some interesting jobs for their kids to stay in the state. And then it's evolved to today where we have over 100 different members.

0:05:52 - (Josh Bartels): 70 of those are individual investors and then another 30 members are either part of a corporate firm, a corporate venture arm or a venture fund as well. So kind of have that full picture of helping people find those deals and go through the diligence with them to facilitating that transaction for, for our members too. So yeah we, we've had a lot of good supporters in the background, a lot of great entities.

0:06:20 - (Josh Bartels): I can be TR Omaha and Nelnet Invest Nebraska to, to help us and support. If that's through leading the deals or co investing with us, that's super, super great to have them a part of the group as well. So other than that we, we help our portfolio companies a number of different ways outside of just the capital that comes through. So we've been connecting with a lot of out of state funds and angel groups to help them raise the subsequent rounds of funding that maybe Nebraska couldn't necessarily provide or get into series A, Series B, really looking on the coast for those, those rounds of funding.

0:06:58 - (Josh Bartels): But yeah, we live right around pre seed seed so companies have some sort of traction in terms of revenue product in the market. We don't lead rounds of funding so it's pretty easiest for us to write a check fairly quickly by using that lead investor's diligence if that's within the state or out of state. So most of the companies we do see are Nebraska based which is great. But we have also funded a number of different Midwest companies as well.

0:07:24 - (Andrew Kazlow): So what would you say your community is particularly excellent? Like if there's one or two or maybe three categories of you know, industry focus or like what are you, what are you, what are you guys really good at?

0:07:40 - (Josh Bartels): Yeah, so we host monthly meetings, we pull a decent amount of members to those to serve dinner drinks but then also invest and see the company's pitch at our monthly meetings. So part of it is that social side of when everyone walks in the room there's no hierarchy, there's no, you know, people think them they're better than the other but it's more of just a great group of people that are all interested in startups, all interesting in helping these companies grow.

0:08:10 - (Josh Bartels): And so I think the culture is a super interesting piece that I've heard our previous directors but then also our board mention where it's super interesting to see, you know, everyone's interested in startups, everyone wants to invest and Participate no matter who's sitting next to each other. So I think that's one piece that we're super good at and that makes people really comfortable to invest, that they know they can trust the person across the table from them, another investor to really talk about those deals and make sure they're making that data driven decision as well.

0:08:44 - (Josh Bartels): But then also having that background to be confident in writing the check.

0:08:49 - (Andrew Kazlow): Yeah, the community and social experience is something we've consistently seen is what makes these investor network so special as opposed to just doing it totally on your own. I'd love to hear more about how you got involved in the community and what your focus has been since kind of joining the group.

0:09:09 - (Josh Bartels): Yeah, so I was able to work for a couple of our portfolio companies in college. Well now portfolio companies which was great background just to see how the business operates. One was about 90 to 100 employees and then the other one was five employees. So super interesting to see how those companies were built while I was there. But then also was a part of a student led group in college called Maverick Venture Fund. So grew up in lake in Nebraska, moved up to Omaha for school, played golf there for four years but then it was also part of Maverick Venture Fund. So student led organization that write checks into Nebraska based companies.

0:09:50 - (Josh Bartels): And once graduating I was able to work for Nebraska Angels in a part time capacity but then also a law firm based out of Lincoln called Now Michael Best. The Enterprise Legal Studio was the name of it and we still work very closely together with that group down there which was super interesting to get inside the weeds or deep in the weeds on diligence of the companies, meeting the founders and the investors in the room, helping with membership onboarding. I think that's super important for new members that haven't invested in startups in the past which then led to our previous director left and so I was able to take over her position and been in the seat for about two years then. So all in all it's always great to hear the members perspectives thoughts on the deals but then also meet the founders that are building as well.

0:10:42 - (Josh Bartels): So yeah the main initiatives over the past few years is really connecting with those out of state angel groups and firms. So there's a number of us that are part of the Midwest Angel Syndicate. So early stage venture funds and angel groups will join this monthly call that we all host and that's a great way to talk shop between these angel group investors or operators like myself, but then also to share deals back and forth forth between our groups.

0:11:11 - (Josh Bartels): The other piece is the venture funds too. We found that a lot of VCs will be leading these rounds that we are interested in participating in. We have invested in angel group led rounds as well. But that's also super helpful as a company goes to raise subsequent rounds of funding as mentioned earlier. So that's the biggest piece of growing that network outside of the state, but then also the membership onboarding process as well.

0:11:35 - (Josh Bartels): A lot of these investors aren't really in touch with what the startup ecosystem is, which is totally fine. They didn't grow up or build a business in the startup ecosystem or venture backed startup ecosystem, but they still have a wealth of knowledge that we can pull on for industry expertise or networking. So making sure by pulling on our members experiences to provide them some sort of course or workflow to get more in touch with startups and what it means to write a check and how many checks you should write and kind of down the rabbit hole on that side of things.

0:12:11 - (Andrew Kazlow): So I'm curious Josh, I mean you've been involved for two years ish now in this full time capacity. Why do you think your community consistently shows up in this top 5 top 20 list? What is it that you guys that are doing that is so special? Yeah. React to that. I'm just curious.

0:12:35 - (Josh Bartels): I think it's a collaboration between our members and collaboration between the funds that are based in the state and also those that use us for deal flow and diligence. I think Nebraska has a little under 2 million people within the state if not around that number. So there's no real room for sharp elbows as you kind of narrow it down of who's investing capital in the state. So we all want these founders to succeed. Raise has enough capital to get to that next stage of A seed Series A, Series B.

0:13:07 - (Josh Bartels): So I think we all somewhat understand that there has to be a collaborative effort rather than trying to squeeze into deals and cut people out. So I think that's a part of it. It's funny, an anecdote. Another angel group operator mentioned based in Kansas is when we travel there, there's three Nebraska people that travel to Minneapolis or Kansas City or something. We're all kind of in the same group hanging out with each other and we're all part of different funds, we have different thesises and all invest in the same companies.

0:13:42 - (Josh Bartels): But that close nature of being friendly and collaborative with each other I think is super helpful for companies here, but then also raising a full round of funding too.

0:13:53 - (Andrew Kazlow): Hmm. So as you look forward I guess it sounds like the community the social experience, the network. These are the simple, not easy things to continue to cultivate in your ecosystem. What are the things that

0:14:11 - (Josh Bartels): you guys

0:14:12 - (Andrew Kazlow): are looking towards in the future? What are the new initiatives, new projects, new things that you're kind of dreaming about? I understand you personally got some interesting projects in the works, but I'd love to hear like what's, what's next for the Nebraska kind of angel ecosystem in your view?

0:14:28 - (Josh Bartels): Definitely continuing on of building those out of state relationships of different funds and angel groups and collaborating on that front. There is another item that hasn't publicly launched yet, so I'll hold that off until later this year is the plan. So that will be a great, great way to just enhance the local Nebraska, but also modern Midwest ecosystem as well. But I think those are the main things and the onboarding process is super important as we get more members to participate.

0:15:03 - (Josh Bartels): This year we only had 6% membership churn, which in the last couple of years has been anywhere from 15 to 20% membership churn, which is a great number to really see that group connecting and seeing interesting deals through our process.

0:15:23 - (Andrew Kazlow): A quick note before we continue the

0:15:24 - (Andrew Kazlow): conversation alongside the Diligent observer podcast and newsletter, I also run an outsourced operations service specifically built to serve angel networks.

0:15:33 - (Andrew Kazlow): My team handles things like initial screening,

0:15:35 - (Andrew Kazlow): social media, newsletter prep, platform management and

0:15:38 - (Andrew Kazlow): a whole lot more. The kinds of things that either aren't

0:15:41 - (Andrew Kazlow): getting done or shouldn't be done by busy community leaders.

0:15:44 - (Andrew Kazlow): If that sounds interesting to you, send me a note. Now back to it. So you mentioned the onboarding process a couple of times. Now what in your opinion makes a good onboarding process versus a bad one?

0:15:56 - (Josh Bartels): So what we do is when a new guest or member comes into the network, typically it's a friend of a previous member. So that connective tissue is already there and that trust is already there. So they could talk back and forth between the deal and then also make investment decisions separately but but with some sort of collaboration together. We also partner people up if they're new to the group, if they didn't come from a another member. Just so there's almost like a buddy system to have those conversations and cultivate that that relationship between them.

0:16:38 - (Josh Bartels): And then we also have a work email workflow that we put each of our new members through which it's about five to seven emails that just kind of outline different topics about angel investing. So it's like a welcome email. It's what to expect, like when are our monthly meetings, where can you participate, where do we need help? And Then getting deep in the weeds of what is a term sheet. How does our process work when screening companies?

0:17:09 - (Josh Bartels): Where are you interested in. Where do you think you could help in supporting these founders outside of capital? So that's how we do it. I think the bad comes from doing nothing which congrats you're in.

0:17:25 - (Andrew Kazlow): Welcome to the group.

0:17:26 - (Josh Bartels): I so I definitely better to lean more towards the structured onboarding process I would say but everyone learns at a different pace and some people may just delete the emails of the onboarding process and like I'll just talk to my buddy and he'll tell me how to do it. And so it's a, it's a balance of both.

0:17:45 - (Andrew Kazlow): Yeah. So what else do you think contributes to that massive. I mean it sounds like a pretty significant reduction in churn this year. Why is that in your opinion?

0:17:54 - (Josh Bartels): That's an interesting question. I think a lot of the deals we do see are Nebraska based so we partner with a number of different firms locally. But then another organization is called InvestNebraska and they do lead most of the pre seed seed rounds here and that's always super helpful to us because we don't lead but also we're able to use their diligence on the companies. Now decisions are made separately but if they're leading then chances are not they're coming through our process to raise additional capital.

0:18:30 - (Josh Bartels): So that tight knit relationship there is great to have that deal referral pre screening process even before our process to say yeah, this is a company our members may want to invest in. I would attribute part of it to the onboarding process as well. Just making sure people are comfortable in the room, making sure that they have a friend to see at each of the monthly meetings. That also helped. We also improved our catering menu as well this year. So that probably was it. That was the main thing.

0:19:12 - (Andrew Kazlow): It's the little things, it's always the little things that you don't expect expect.

0:19:17 - (Josh Bartels): It's interesting. Try to make a great experience for our members to come through and it's interesting how we'll serve drinks, we'll serve dinners, how small those things are. But it's important for someone to drive 20 minutes to our monthly meetings.

0:19:33 - (Andrew Kazlow): I totally see that. So Josh, give me your mental map of the startup ecosystem and Omaha specifically and then Nebraska more widely. It's not an area that is in my view particularly well known for startup ecosystem and so it's exciting to me to see your community thriving so much over the last several years. Give me your view on who are the major players in the early stage ecosystem. You mentioned Invest Nebraska so I'd love to hear more about them and then any others that you think are of note.

0:20:09 - (Josh Bartels): I'll kind of start at the beat beginning of the funding process. So family and friends. It's Nebraska is not that big. So the 2 to 3 degrees of separation is great for raising additional or initial capital or even just getting started with the business. So it's not too difficult to reach out to one or two people say hey can I get an introduction to this person? I'm curious to pitch them on the product that does happen and that's great that we could offer that based on how many people are in the state.

0:20:45 - (Josh Bartels): We do have a really strong prototype grant program so it's run by our Department of Economic Development to help a company start to build out a prototype or mvp along with matching capital from other investors or the foundry themselves. We have a pre seed fund called Move. We have a accelerator called and Motion that's a part of Generator, the broader network of accelerators. And then moving down the line we'll live right around Pre Seed Seed. So we like to see traction revenue and that's when the first round of someone leading the deal comes in and that typically is Invest Nebraska which is, which is great.

0:21:29 - (Josh Bartels): There has been a new. Well they've been around for a couple years but an agtech fund named Grit Road where they're specifically investing in agtech that's been really great. Cause we're in Nebraska. There's a lot of corn and cows, but then a lot of resources. One that Invest Nebraska runs is the combine. So helping out in that early stages of finding customers, finding capital, really being an incubator for those companies is super great.

0:21:59 - (Josh Bartels): But Shin and Grit Road will also lead rounds of funding so we'll participate with them alongside Invest Nebraska as well. And then a couple family offices here too. PGSA Ventures. I'm actually sitting in their building right now and they're a great family office that invests into local companies and Precedes Seed as well. Also a fund of funds too. The other one is Nelnet and they are probably have deployed the most capital in the state to startups.

0:22:34 - (Josh Bartels): Nelnet Inc. Is a publicly traded company based out of Lincoln but they have a super strong venture arm. So they have holdings in companycam and Huddle, the sports tech company and a number of other related startups and now solidified businesses based here in Nebraska but then all across the country as well. So they, they were one of our founding members of the group. So they've been super great to, to work with over the years and still deploying a lot of capital into, into the businesses that, that we'll invest in, but then also through their, their cdc and then I would say right around the Series A stage is kind of where it drops off of, of potential funding sources.

0:23:21 - (Josh Bartels): There is, there are options for our groups to follow on during those stages and raise 1 to 2 to 3 million dollars in total together. But usually that, that true institutional Series A, we're looking outside the state for, for those venture funds to, to lead or to fill the rounds. So that's, that's the landscape I'm trying to think of who else remiss. We have had a private equity group lead a couple of the Series A rounds here in the state, which has been great. And so other than that, we've, we've kind of had to look outside the state for Series A and Series B in the home.

0:24:03 - (Andrew Kazlow): And do you typically see those founders exit or is it like exit the state or is it just raising capital externally and then continuing to build locally? Like I'm curious how strong the regional kind of housing is, so to speak, for these companies as they grow because so often, you know, it's the case in tier 2, tier 3 markets where a company gets to a certain stage, exits the region and moves to the Valley or to New York or whatever. Do you see that pretty commonly in your ecosystem or do folks like to stick around?

0:24:32 - (Josh Bartels): I'd say I like to stick around in Nebraska's relatively cheap to live compared to anywhere else in the country like San Francisco or New York. And there is some good tech talent here. Huddle, I don't know how many employees they are, but Huddle's Force Tech company, they're global now have offices all over the country, but their headquarters is still here in, in Lincoln, Nebraska. So that's, that's great to see.

0:25:00 - (Josh Bartels): The other larger company that our members were able to to fund was Company Cam or is Company Cam still headquartered in Lincoln, Nebraska? They do have employees all across the country as well, but their founders and executive team is all here in the state, so that's great to see. As more companies are coming up, people believe those larger companies to start new businesses or if there's some sort of liquidity event, they can start funding startups as well.

0:25:32 - (Andrew Kazlow): Are there any other like stories or, you know, companies that you guys talk a lot about, like tell me about the winners or the success stories that you get excited about that, that we

0:25:42 - (Josh Bartels): should know About Company Cam was was one last year that took money from B Capital and Alpha Partners and they reported a $2 billion valuation after, after that round. And so members were able to participate in the secondary along with the founders and employees. So that was super exciting for the startup ecosystem to have more liquidity in the markets to invest in new businesses or have those employees start their own as well. So that's the one that's been so far the best in Nebraska Angels portfolio.

0:26:21 - (Andrew Kazlow): It's always such a fun moment when the magical liquidity event happens and then all of a sudden it just feels like folks are a little more generous, a little more eager to deploy. It's funny how that works. I mean, we just recently went through that. I sit in Texas and so SpaceX obviously a huge presence here in Austin, Houston area. And so the energy is just palpable. When there's a moment like that that just totally reshapes the community because there's hundreds or even thousands of new investors hit the streets, so to speak.

0:26:56 - (Andrew Kazlow): I'm curious what that moment was like for you guys. It sounds like Maybe not the SpaceX type experience, but maybe not too far off.

0:27:04 - (Josh Bartels): Yeah, I mean there's already companies being built by previous employees of these exited businesses or those companies that have secondaries, so that's always exciting to see. The other part is the investors too. Like there's probably, maybe part of it because of the churn last year was the exit that this company had that probably played a role in being able to see some sort of liquidity path. I will say I haven't seen a massive uptick in investment activity because of it.

0:27:41 - (Josh Bartels): Maybe it's. I'm not sure what the reason is because of that, but at least in the angel group. But I haven't seen that much of an uptick because of those liquidities. But it is a super exciting moment. It's all like almost chaos at the beginning and then it happens and then it's like, all right, that was pretty sweet.

0:28:04 - (Andrew Kazlow): Yeah, yeah, yeah. They're fun, fun stories to talk about. So tell me more about what you are working on. Understand you've got a special project that's been in the works that's been providing some value to, to your community as well. Tell me a little more about that.

0:28:18 - (Josh Bartels): Yeah, yeah. So it's called Gather. Worked on it for about a year or so and just publicly launched probably a month ago as well. So helping startup investors, angel investors, angel groups, venture funds, really streamline their workflows in terms of investor updates, portfolio company Reporting, but then also like data extraction as well. So what we found, and this came up probably three or four times at our board meetings with Nebraska Angels is how do we structure, extract and be able to report on these investor updates that are coming through.

0:28:56 - (Josh Bartels): We receive a decent, a good quality, a good chunk of them each quarter. But there's so much more details that really goes into it. Like you have a term sheet. Okay, when was the last raised round and what was the valuation? What can I expect? When's the maturity date? Um, so really streamlining all that craziness with documents all over the place and emails and the person who did due diligence on your team or another member, just putting that into one spot. So, so people like myself or the operators can, can use that information accordingly. If that's reporting out to our members, if that's providing more clarity on, on if or when a member should make a follow on decision.

0:29:40 - (Josh Bartels): And then it also helps with the time savings as well. So we're Nebraska Angels is a lean and mean team. We have a number of different interns that are part of universities that are super helpful. I'm the only full time person on board, but our members are great that help out in terms of the screening committee, the diligence front, referring deals. So all that lives across different data sources and so we connect it all together just so it's easier for, for everyone.

0:30:09 - (Andrew Kazlow): Love it, Love it. Well, that is certainly a pain point across the ecosystem can be a mess if we don't pay close attention and stitch it together thoughtfully. That is not something that private market, particularly at the early, early stages are well known for. So certainly a deep need.

0:30:27 - (Josh Bartels): What we found too is now typically for a typical fund that GP stays for the 10 years, but if you have a member or director that has email inbox that's full of investor updates, usually that's turned off when someone else takes over or even the succession planning of these groups and longevity I think is super important. It's just something that doesn't really come up until it happens and you're like, oh, that'd be nice to have those details and I know fall to anyone, but it's just not one of those things that you think of until it, it really pops up.

0:31:05 - (Andrew Kazlow): Yeah, yeah, it's like a, it's not a problem until it's a problem and then it's a problem.

0:31:09 - (Josh Bartels): Yeah, exactly.

0:31:11 - (Andrew Kazlow): I love it. Well, Josh, anything else on your mind that we haven't covered that you feel like our audience should know about?

0:31:19 - (Josh Bartels): I don't think so. I think covers just about everything, but appreciate the opportunity. It's great to great to chat, of course.

0:31:26 - (Andrew Kazlow): Well, anybody listening that is interested in getting plugged into the Nebraska ecosystem, give Josh a call. Nebraska Angels Meet Monthly sounds like and always love to have guests. So Josh, thanks for joining and taking the time to share more about what you guys are doing.

0:31:41 - (Josh Bartels): Thank you so much.

0:31:43 - (Andrew Kazlow): Thanks for listening to this episode of the Diligent Observer. I'm your host, Andrew, and if you're an angel investor looking for essential angel intel in five minutes every week, I think you'd enjoy my newsletter. I send my best stuff, interesting deals and more straight to your inbox so you never miss a thing. Subscribe today@thediligentobserver.com.