A corporate attorney, Colligan is an angel investor himself, and chair of the Buffalo Angels group within the Western New York Venture Association. The group has 80 members.
He's also one of the directors of the regional Launch NY nonprofit, whose mission is to support the startup and growth of new businesses. And he is one of five managers of the new Buffalo Angels LLC, a pooled investment fund that is seeking to raise $2 million to invest money in startups in Western New York. It now has about $575,000 in commitments, and Colligan hopes to have 60 investors.
Q: How did you get involved in angel investing?
A: As a lawyer, I have clients that are angel investors, I have clients that are venture capital firms, and I have some entrepreneurs either that I represent or people in my office represent who are trying to do a public financed startup. They're going out into the marketplace to acquire the capital to grow.
I was attending Western New York Venture Association meetings and I made the big mistake of raising my hand when they asked how they could improve our quarterly meetings ... A week later, I got a call asking if I would join the board.
Q: What are angel investors?
A: The typical angel profile is a former business owner ... Two things they have are cash and knowledge. They are incredibly helpful mentors for some of these small companies. They go on the boards of some companies we invest in, they know the space, they give them advice.
They're not wannabe businessmen, because they've been there, did that. Their time is over. But they're wannabe helpers. They get just as much joy out of launching a company and seeing it grow as they do out of making money.
It's almost like a community service they're doing. They feel it helps the general community they live in. They're giving back their time and expertise to help companies that will help other members of the community achieve wealth creation.
And when you look at Western New York, we need those types of people and we need new companies.
Q: What's angel investing versus venture capital?
A: The big difference is thinking about investing on a continuum. Your early stage is before it comes out of the lab... well before there's any revenue, and sometimes well before there's proof of concept.
We're putting our money into the proof-of-concept stage companies, often to help them with the proof of concept.
Q: What challenges do we face as a community?
A: While there may be a lot of factors that have held us back in the past, the lack of entrepreneurs historically has caused us to dry up the financial pools, but also the talent pools.
Why do they do so well in Pittsburgh? It's because 20 years ago, they started the Ben Franklin Fund and they seeded it with enough money that companies could begin to develop. Then they have something called the Innovation System that was an outgrowth of getting the funding from the Ben Franklin Fund that helped to recruit and train entrepreneurs.
Cleveland, Ohio, eight years ago was the same as Buffalo. It lacked both funds and entrepreneurs, and they started something called the JumpStart System... They train entrepreneurs in the skills of starting a business and how to run a business. Cleveland found the Valley of Death [a difficult early stage for a start-up] was 18 months in Cleveland. They compressed that to as short as four months.
So we created Launch NY... Launch NY hopes to duplicate what Jumpstart in Cleveland has done.
Q: Why is this important?
A: We have a huge amount of primary research investment and a woeful amount of private equity investment supporting the researchers who are hatching the new ideas.
Researchers need runways to launch their ideas... It's very scary to start a company.
It's worse for the smart people who know that if they start a business with no business background, that they could fail just because of their lack of skills. So one of the things you need is a matchmaker. We have tried to do the matchmaking locally, but we are getting more researchers than the current resources can provide matchmaking services with. The matchmaking is from a researcher to a businessman.
So Launch NY provides funding, training for entrepreneurs, but also matchmaking, finding people who can run the company... We have people that are inventing things... But you've got to find people that can run the business end of those.
We're trying to accelerate the evolution of our entrepreneurial ecosystem, to take advantage of everything coming out of all these wonderful institutions we have, because what happens if we don't? The billion dollars being spent in upstate is still going to be spent here. What happens to the technologies? They'll be exploited elsewhere. And we have to avoid that at all costs. That would be a shame if that happens.
Q: How are we doing?
A: We have raised about $1.2 million so far. We expect to raise about $3 million total by the end of 2013. That'll hire investment advisers, to pick out the winners and the losers in the entrepreneurial world. It would also get an entrepreneur-in-residence program, where actual business help goes to the entrepreneur to live with them, to teach them what they need to know.
Our goal is to service high-growth companies, the ones that are going to create $30 million in sales or revenues in five years. If they can't do that, at least show us a business plan that they can do that, they aren't candidates for funding.
They may go through the program, and learn how to run their business better than they are running it now. They may learn how to raise money on their own. But they're not the ones that we'll bet the ranch on.
Q: Do we still need money?
A: This goes back to the Cleveland experience, and this is the main reason we're adopting a Cleveland template.
Cleveland, when they started their JumpStart program, had three early-stage venture capital funds. They now have 23... And most of those funds are going to be linking up with venture capital funds from the coast and doing co-managed deals or co-investments.
That's what we want to achieve. We want to have a robust, dynamic venture capital community supporting the ideas. Why am I concentrating on angel investing myself? Because you never get to the VC level if you don't get them through the angel phase or the Valley of Death. That's where Launch NY is trying to provide services and that's where the Buffalo Angels are trying to provide funding.
Q: What's the next step?
A: If we do this right, the sky's the limit... The ecosystem is being built as we sit here today. It's not the beginning of the ecosystem. It's the evolvement of the ecosystem. It's evolving in the right direction for the first time in decades, and there's a lot of players here that are going to help make it happen.
Q: Is it an exciting time to be in the middle of this in Buffalo?
A: This is becoming a different place in a hurry. I think it is an exciting time to be a Buffalonian and I think people are universally excited about the prospects for Buffalo. We're bullish on Buffalo and it's not talking proud. It's being proud.
David Colligan can see the development of the angel investing community in Buffalo