Jon: Hi, I’m Jon Nordby and this is HXTV, championing Houston’s innovators and entrepreneurs. Brought to you by PKF Texas, the CPAs and advisors serving Houston’s innovators for over 15 years. And my guest today is Stephanie Campbell, Managing Director of the Houston Angel Network. Stephanie, welcome to the show.

Stephanie: Thanks for having me.

Jon: Yeah, thanks for being here. So, tell us about the Houston Angel Network.

Stephanie: The Houston Angel Network is the oldest and largest angel network based in Houston. We are also the most active angel network in the United States. Members of the Houston Angel Network have invested over a $100 million dollars and 300 deals since their inception in 2001.

Jon: How many deals do you anticipate doing in a year, how many have you done all together?

Stephanie: Like I mentioned, since 2001, we have done 300 deals. It’s been a lot more recent, the number of deals. So, for example, in 2018, we invested a little over $5.6 million in 80 deals. The year before was $15.6 and around 60 deals, 2017.

Jon: Wow, ok. So, how do people find you? How do you guys manage deal flow?

Stephanie: A significant amount of our deals come through the website. You can apply at houstonangelnetwork.org. We also get a significant amount of our deals from the members themselves. In addition to funding deals, our members are a great source of deal flow. It really takes an advocate at the Houston Angel Network to advance your deal through the process. We also get deals from our syndicate partners. We’re part of a group called the Alliance of Texas Angel Networks, and so, we share deals with the Alliance. We also have a very strong local syndication network. Groups like the GOOSE Society, Rice Angel Network, Cannon Ventures; we get a lot of deals from Rice Alliance; we also have a really strong connection with other accelerator programs and groups like Capital Factory out of Austin, Texas Medical Center, TMCx; we have quite a strong deal flow network.

We also are very active in the community, so our members are doing office hours and mentor hours at TMCx, at Station Houston, at Cannon, and are very active in the Rice Business Plan Competition. It’s mostly about the members getting out into the community and meeting with the entrepreneurs. That’s sort of how we find the deals.

Jon: That makes sense. You and I were talking before we started here, and I realized a fun fact about the Houston Angel Network that I never realized before, which is, you guys are non-profit. Is that right?

Stephanie: That’s correct.

Jon: How does that operational structure work?

Stephanie: If you’re seeking investment from the Houston Angel Network it will be coming from an individual member. The Houston Angel Network, as an organization, does not make investments. Our mission is really one of helping individuals who are accredited learn how to be an angel investor, access venture capital. This is a great place for deal flow but it’s also a great place to learn how to become an investor. In addition to our monthly pitch meetings, we also have lunch and learns on tax implications of angel investing, for example. We have a whole plan of education that we put on throughout the year. We also, we’re run by sponsorships and by membership fees. We don’t take capital—take a fee on capital committed.

Jon: I’m curious if you’ve seen an influx in membership or activity over the last couple of years?

Stephanie: We have seen an increase in our membership over the last year. I think we were hovering around 70 and we’re up to 90. People are always interested in joining the Houston Angel Network, which is really exciting because there’s so much they can give back to the community and so much they can add to the network. It’s a really great place to leverage a group of 90 individuals who have got experience in energy, healthcare, IT, consumer, aerospace, those are all groups that we actually have within the Angel Network.

We’re looking for deals with strong leadership, experience in the field where they’re starting a company, and then do they have traction? The type and stage of deal really varies at the Houston Angel Network. If you’re just kicking off and maybe you need mentorship, it’s also a good idea to come to the Houston Angel Network to leverage that network of 90 members and their expertise. Our members love to be mentors and to help form these entrepreneurs into successful teams and deals, right? So that happened, for example, with Onit, which recently exited to private equity. HAN was one of the early forces in helping that deal form, and then guiding it through the next stages of capital and bringing in other groups like RedHouse to help fund that deal, and then it recently exited to private equity for $200 million dollars. That’s sort of a local, Houston and HAN success story.

Jon: You mentioned the early stage investment committee a couple of times, through HX. Give us a sense, over the last year or so, we’ve seen a major increase in venture firms and angel groups and capital coming in. Not just off the sidelines locally but from other parts of the country. Give us a sense of what you’re working on with that group and what you hope to accomplish over the next year or two to create that efficient pipeline.

Stephanie: First step is we’re just trying to get all the key players in Houston together to talk about what is it going to take for us all to work together more? I know it’s been done in the past and it’s really been based on relationships, but how do we formalize that process, make it less opaque for entrepreneurs who are trying to seek funding in Houston? I think HX is doing a really fantastic job of being that central point where we can all put our resources in a place where it’s sort of a safe space for everybody to operate, get the information out to the entrepreneurs, and also the investors that are interested in getting active in the local community that haven’t been active before. So, here’s a place you can come that you’d fit and help you deploy your capital.

Jon: On the early-stage piece, the interacting with the other angel groups, remember when you were first on board with Houston Angel Network there was a big announcement about the Houston—

Stephanie: Investor Network Alliance.

Jon: Investor Network Alliance, yeah. Tell us about that.

Stephanie: That kind of came out of me getting all the executive directors or the directors of the organizations together and saying, I need to meet you, what can we do together, how can we formalize this, how can we provide a united front to the entrepreneurs in the community, that if you come to HAN that’s not the last step. We’re working together to help these deals be successful. If a deal is not a good fit for the Houston Angel Network, I will pass it to not only the Alliance of Texas Angel Networks but the local groups. On the other side of that, if it is a good deal for HAN, I want other groups to get into the deal as well. So, figuring out ways to break down those barriers to make sure that happens is sort of the work that Houston Investor Network Alliance, or HINA, has been doing in addition to bringing that into the HX resources that you’re helping us with.

Jon: That’s awesome. As a young company, how does somebody get into a Houston Angel Network meeting, how do they get to the point where they can pitch, and then what does it take for them to actually get an investment from the network?

Stephanie: There’s so many ways you can get into the Houston Angel Network. I would say first, please go online and apply to our website.

Jon: The website is…

Stephanie: houstonangelnetwork.org. There is a link at the top that says, ‘Apply For Funding,’ and so that’s really the first step. We want to learn about you, some of the initial stats on your business, your bios, your financials, that kind of thing. And then the next step is really, I will assign you to a member who has a potential interest in your business or an expertise in your business. I think it’s really good to sort of date some of the members to see who is a good fit to be a mentor. When you get this early stage investing you have to remember you’re going to be raising multiple rounds and it’s kind of like a marriage, right? So, you want to make sure you’re getting good investors. We’ve got a great pool of them at Houston Angel Network. Once you get an advocate at HAN, they will present your deal to the internal membership. If you get past that stage, then you come and present to our broader audience. We have those opportunities once a month. They’re typically at the Houstonian Hotel or with one of our partners at BBVA, or Rice Alliance.

Jon: Give us a sense of how many applications do you typically get in and what the acceptance rate is to get in front of the network?

Stephanie: Oh yeah, we, I probably have about 50 to 100 applications a month. It’s a lot. I would say, you know, don’t expect that first month that you apply that you will get funding from the Houston Angel Network unless your deal is getting ready to close. Then you need to email me so I can help expedite it. You’ll probably get assigned to someone the first month, and then the second month you may go through the internal screening process, and pitch that month or the next month. It’s a pretty fast cycle. And so, I’m the managing director, I have a team of venture associates from the University of Houston and Rice that help me sort of do that first level screening. So, you may meet with them or have a call with me and then an angel.

Jon: So, an entrepreneur goes through that three-month process, they get in front of the network and they pitch. Obviously, the folks in the network, they’re free to make their investment decisions, right? But what does it take to actually become an official Houston Angel Network company?

Stephanie: One of our members has to invest in you to become a portfolio company of the Houston Angel Network. After you pitch, there’s going to be the typical due diligence process where we will want to have an initial call to ask you more questions about the pitch you presented to us, dig into the financial a little more, dig into the model, you know, what you said to us was true, right? And then from there, that due diligence process usually takes 4-6 weeks. It can be faster, it can take longer, it really just depends on the interest level and the appetite to move forward.

Jon: Help us now understand the other side of the equation. So, accredited investors, how do they find HAN, how do they get active, how do they apply and get involved?

Stephanie: Same process, in some ways. Go to our website, apply. Once you apply, I’ll call you and want to talk to you about your motivations for joining the network. If you’re looking for funding for your deal you should not apply to become a member of the Houston Angel Network. It’s really for those who are looking to deploy capital, and so, apply through our website, come as a guest to one of our meetings, see what it’s like, and we’ll go from there.

Jon: Awesome. Well, Stephanie, thank you so much for joining us today. That wraps up my conversation with Stephanie Campbell, Director of the Houston Angel Network. I’m Jon Nordby, and this is HXTV.