- 632 West 6th Avenue
- Anchorage, Alaska 99501
- 907 343-4898
- © 2012 Municipality of Anchorage
Frequently Asked Questions (FAQs)
1. What is the 49th State Angel Fund?
Funded by a federal allocation of $13.2 million from the State Small Business Credit Initiative (SSBCI), the 49th State Angel Fund was created when the Municipality Of Anchorage successfully applied for federal treasury’s Venture Capital program under SSBCI, which was designed to provide “investment capital to create and grow start-up and early-stage businesses.”
2. What does the 49th State Angel Fund do?
Provide investments to early-stage high-growth businesses showing significant economic potential. We do this both by directly investing in businesses and by indirectly taking a partnership interest in locally-focused angel or venture capital funds.
3. Does the 49th State Angel Fund offer grants?
No, we only invest. We believe the business model of angel investment is the best method of deploying early-stage capital for Anchorage startups. It keeps the bar high, ensuring that we invest in the most promising early stage businesses. Having an investment at stake and expecting a return also helps entrepreneur performance, making the firm stronger and more prepared when it enters the competitive marketplace.
4. What’s the mission of the 49th State Angel Fund?
It is to:
•Provide a source of capital to high-growth businesses. This promotes entrepreneurship and fosters innovation, creating jobs and economic benefit for Anchorage.
•Help strengthen the local angel investment network and attract additional venture capital to the city.
•Assist early-stage and disadvantaged businesses.
5. Who should I contact for help applying or with questions?
Many questions can be answered as our website continues developing. Alternatively, prospective applicants and others should contact Joe Morrison, Angel Fund Program Manager by email or by phone at 907.343.4898.
6. What is angel investment?
It’s a form of early stage equity investment that typically involves an individual investor providing money to help get a business off the ground or through an initial phase. Seed money is invested into what the angel hopes are high-growth business startups. Because there is considerable risk involved in this type of investment, a higher than average return is expected.
7. How much risk is involved with angel investment?
It’s volatile, since newer businesses frequently fail. Recent studies showed that among angel-funded ventures, approximately:
• 30% fail completely;
• 50% return less than the initial investment;
(Source: Federal Reserve Bank, Atlanta)
• 7% of the ventures create 75% of the gains in a portfolio.
(Source: Kauffman Foundation)
This means that while making one individual angel investment is high-risk, building a portfolio is a best practice. It also means that successful, high-return ventures are a way for angel investors to counterbalance losses. This will be true of the 49th State Angel Fund as well.
8. How does the 49SAF invest?
Like an angel investor, the 49SAF provides money for high-growth start-up businesses.
• Direct investments in a business require 1:1 matching new debt or equity funding. This means that if your business needs $100,000, only $50,000 should be requested from 49SAF, with $50,000 coming from another source (debt or equity financing). This money also can’t be currently on your balance sheet, it has to be new funds closing in tandem with the 49SAF investment.
• Indirect investments—49SAF taking a partnership interest in third-party angel or venture capital funds—require at least a 1:1 match and which demonstrate the ability to reach 10:1 over time.
9. Why the matching funds requirement?
1. The 1:1 match is a requirement per the conditions of the SSBCI allocation (i.e., the money that 49SAF received) from federal treasury.
2. It’s also a best practice to invest with others. This helps ensure that more than one party keep an eye on the venture to help ensure its success.
3. It’s tied to the overall performance metric of 49SAF: Per federal treasury, 49SAF’s goal is to leverage the funds it provides to businesses 10 times within five years. This means that the 49SAF will be a success if it creates $130 million in additional follow-on financing from the original $13.2 million allocation.
10. As an applicant, must I currently have my 1:1 matching funds secured?
No. But if your proposal is initially successful and passes the advisory committee review, then you have 90 days from entering the due diligence period to secure the funds. This means that you can apply for funding and then and start working on securing other half (for direct investments) or quarter (for fund-to-fund investments). Having the funds secured at the time of application, showing a high likelihood of achieving them, or demonstrating higher matching funds than required will increase your chances of success.
11. How much does 49SAF invest in a business?
• Direct investments in businesses: From $30,000 to $3 million.
• Indirect investments in funds: From $100,000 to $5 million.
12. Why is 49SAF doing both direct and indirect investment?
Indirect investment is likely the most efficient way to deploy early-stage capital into the Anchorage market. 49SAF recognizes, however, that not many angel investment or venture capital networks currently exist within Anchorage. That’s why we’re undertaking both forms of investment.
13. Why does 49SAF prefer indirect investment over directly funding businesses?
49SAF anticipates that 2/3 of its portfolio will be in indirect fund-to-fund structures, versus (1/3) direct funding of businesses because indirect funding better diversifies risk, requires less direct management, and adds private sector efficiencies and acumen to decision making. It also helps create more permanent early-stage capital structures within Anchorage.
14. What’s the application process? Who makes the decisions regarding investment?
After a complete application is received:
• An initial screen occurs by program staff and the Anchorage Economic Development Corporation to determine overall compliance with the program and whether the application passes a quality baseline;
• The plans go before the 49th State Angel Fund advisory committee, which may choose some or all of them for in-person presentation;
• Advisory recommends select investment opportunities. Successful applicants are notified, and a 90-day due diligence period begins;
• Applicants passing due diligence are put forward to the Mayor and Chief Financial Officer for funding and final approval.
15. When can I apply?
There are three open application periods: One in 2012, and two in 2013. For 2012, applications may be submitted between May 14 and August 5. No late applications will be considered.
16. What type of business is a strong applicant for direct investment?
Any high-growth business that shows significant economic potential for Anchorage is a good candidate. Other strong candidates are those businesses which also operate in a HUBzone (economically disadvantaged part of Anchorage), are minority-owned or which present turnaround opportunities. In 2011 the most popular sectors for angel investment were software, healthcare, industrial/energy, biotech, IT services and media (Source: Centure for Venture Research, PDF link). Recognizing that Alaska is different from much of the US economically, diversion from these sectors is likely.
17. What does high growth mean?
It means that from the initial investment provided by the angel fund, it’s likely that the business can take on additional debt or equity financing of 10-to-1 in five years (10x leverage). For a more extensive explanation of this, please visit this link about the financing ratio.
18. Will these funds be available to businesses located outside the boundaries of the Municipality of Anchorage?
Only rarely, and only if there’s significant resulting economic benefit for Anchorage. Contact program staff (343-4898) for more information. 49SAF is intended to create jobs and promote economic development within Anchorage. That is part of our agreement with Federal Treasury; as a result, businesses will typically have their headquarters located here.
19. How much funding is available?
The 49th State Angel Fund has been awarded $13,168,350 by Federal Treasury. Of these funds, $481,960 has been dedicated toward program overhead, and will most likely be expended within two years. Of the remaining $12,686,390:
• $4,128,279 is scheduled to be invested in 2012. The application period for these funds is from May 14 until August 5 and should be distributed by year-end.
• $8,558,111 is scheduled to be invested in 2013. The first part of these funds—$4,215,189—is scheduled to be distributed the first half of 2013, the remainder in the second.
20. Is the funding primarily debt or equity?
The 49SAF primarily makes its investments by achieving in return for its investment some type of equity interest. At times, debt financing may be used depending on the interests of the applicant, co-investors and the 49SAF.
21. Where do I apply for the 49th State Angel Fund?
Applications will be available online from May 14 to August 5 2012 at www.49saf.com. Two more application periods will occur in 2013. Please note that the application is in two parts for direct applicants (businesses), and in one part for indirect applicants (third party angel/venture capital funds). All questions must be fully answered and required documents posted. For assistance, contact the 49SAF program manager.
22. What do I have to do to apply?
- Requirements for direct investment include answering a series of questions, uploading a business plan (under 20 pages, please), financial plan and three years of financial forecasts.
- Requirements for indirect investment include answering a series of questions and uploading a cover letter
23. Are there fees involved?
Only one: The 49th State Angel Fund charges a $100 application fee.
24. What are the eligibility requirements?
Direct: Businesses or prospective businesses applying for 49th State Angel Fund investment must—
• Be physically located within the Municipality of Anchorage.
• Fully complete the online application (includes a $100 fee)
• Within their application, demonstrate a likelihood of growing their balance sheet by 10x leverage.
• Comply with the Investee Certification for Use of Proceeds
• Have fewer than 750 employees
• Not be delinquent in paying any nonprotested local, state or federal US taxes
• Agree to report back to 49SAF quarterly regarding key activities and financial activity. Also complete the Annual Reporting Requirements.
• Have all principal owners agree to a standard background check
• Have no principal owners who are convicted sex offenders.
• Understand that 49SAF investment means it’s likely that:
o The Municipality of Anchorage will take an ownership interest in your business.
o Additional information or control rights may be required, per the terms of the investment. All such details will be outlined in the term sheet of successful applicants.
Best fit businesses for 49th State Angel Fund investment are those which:
• Can demonstrate 10x leverage within five years,
• Create significant economic impact within Anchorage
(jobs being a key component)
• Scale quickly and communicate an exit strategy
Indirect: 3rd Party Funds 49SAF Partnership Must—
• Invest only in businesses which meet the above requirements
• Fully complete the online application.
• Be a partnership, limited partnership, corporation, limited liability company, limited liability partnership, trust, or estate.
• Be organized for the purpose of investing in a portfolio of nonpublicly traded that meet program objectives.
• Consist of at least three accredited or qualified investors as defined by Securities and Exchange Commission regulation D, rule 501.
• Be in compliance with the securities laws of this state
• Have no principal owners who are convicted sex offenders
25. What financial options or packages are available to businesses?
The 49SAF primarily offers equity funding (an investment in a business in return for an ownership interest), though some types of debt financing may be offered depending on the individual opportunity. While exceptions exist, direct investments typically fall into one of three categories:
• PreSeed: The earliest stages of a business (49SAF invests $30,000-$100,000)
• Seed: The second stage, often to gain initial customers or launch into the marketplace (49SAF invests $100,000-$500,000)
• Expansion: Businesses ready to expand at scale or which, through a capital injection, are capable of increased performance (49SAF invests $500,000 – $3,000,000)
Indirect investments in a fund of funds will not exceed $5 million, and will take the form of a partnership interest in the fund.
26. Are the funds available to any type of business?
49SAF investment is not permitted for purposes of passive real estate investment, in speculative activities which earn revenue from price fluctuation, gambling establishments, pyramid sales plans, a business that earns more than half its revenue from lending activities (with CDFI exceptions), public utilities and administration. Businesses involved in illegal activities of any kind are also ineligible.
27. My business isn’t likely to grow its balance sheet 10 times in five years. What should I do?
Not all businesses are the right fit for 49SAF: Our program was designed to provide a missing source of early-stage capital for businesses which often have difficulty finding more traditional means of funding. That said, many funding opportunities exist through Alaska banks, credit unions, individual equity investors as well as arms of government. Contact Alaska’s Small Business Development Center (http://aksbdc.org/) or a financial advisor for further guidance.
28. What criteria does 49SAF consider in making investments?
All 49SAF staff, advisory committee members, and municipal officials involved in making decisions regarding funding consider the seven following factors when evaluating any opportunity: business strategy, team, economic impact to Anchorage, market, product/services, project budget and finance plan.
29. What does the 49SAF require of successful applicants?
The 49SAF will expect quarterly unaudited financial and key activity reports from your business or fund to monitor its investment. A more extensive annual report is also required. Other terms (such as additional information, board or observation rights) may be required per the terms of an individual offer. Consider also that the 49SAF made an investment, and is seeking for an “exit” or a way to achieve its return.
30. If I qualify, when would I receive funding?
For the first investment round, applicants who pass the advisory committee and initially selected as strong candidates for funding will know on or before September 30, 2012. From then, a 90-day due diligence period will occur. If successful in passing due diligence and obtaining final approval, your business will receive investment by year end.
31. I'm the owner of a new restaurant or retail store. Can I apply?
Yes, but keep in mind these businesses are typically less likely to receive 49SAF financing, since they often do not exhibit the growth that the 49th State Angel Fund is targeting (10-to-1 leverage on the balance sheet within five years). In addition, these forms of businesses are often capable of securing more traditional means of financing which is currently available within Anchorage.
32. What is the State Small Business Credit Initiative (SSBCI)?
The SSBCI is a Federal program administered by the Department of the Treasury (Treasury), which was funded with $1.5 billion to strengthen state programs that support private financing to small businesses and small manufacturers. In conjunction with leveraged private financing, the SSBCI is expected to help spur up to $15 billion in lending to small businesses and manufacturers that are not getting the loans or investments they need to expand and create jobs. The SSBCI allows states, territories and eligible municipalities the opportunity to build upon or create successful models for state small business programs, including Capital Access Programs (CAPs), and Other Credit Support Programs (OCSPs) such as collateral support programs, loan participation programs, loan guarantee programs, and venture capital programs.
33. How long will the SSBCI operate?
The SSBCI is a one-time program of limited duration. The authorities and duties of the Secretary of Treasury to implement and administer the program terminate on September 27, 2017. The obligations of participating states and territories to perform and report on progress will expire as outlined in the terms of the Allocation Agreement. Allocation Agreements between the Treasury and the participating states, territories and municipalities will expire on March 31, 2017.
34. May states, territories, or eligible municipalities contract for the administration of their CAP or OCSP?
Yes. The Act allows a participating state to enter contracts in which its SSBCI-supported program (CAP or OCSP) is administered by another state or by an authorized agent of, or entity supervised by, the state, territory or municipality. This option allows states, territories or eligible municipalities that are launching new programs to obtain the advantages of using an experienced public or private administrator. Using an experienced administrator may facilitate the launch of a new program and save expenses.
35. Are funds transferred under SSBCI considered a grant or other type of federal assistance?
No. Section 3003(c)(5) of the Act specifically states that funds transferred to states, territories, and eligible municipalities under the SSBCI program are not considered federal assistance for the purposes of subtitle V of title 31 of the United States Code. Because SSBCI funds are not considered federal assistance or a grant, many federal assistance or federal grant reporting requirements do not apply.