Business as Usual: Alleghenies Angel Fund

 

Transcription: 

So good afternoon, everyone. This is Audrey Russo, President and CEO thrilled to be here today on another beautiful day in Pittsburgh. But hopefully we're talking to the world, not just all of our friends in Pittsburgh. I'm president ceo, the Pittsburgh Technology Council, and I'm joined by Jonathan kersting. He's vice president of all things, media and marketing, as well as storytelling. And he is going to make sure that we have plenty of time on the chat to have conversations with our guests. Today, I want to give a big shout out to Huntington bank thanking them for being with us across this entire journey. Since COVID, we're in our hundredth blah, blah, blah, date today, I don't even let walk. That's okay. I don't mean in a negative way. I mean, that we're just fighting on words and making sure that we're keeping the community tethered. And today is no exception. We're very excited to be able to talk about investments, there were and startups and entrepreneurship and all those fun things that we know are really important to the Pittsburgh region. And, and and actually, I'd like to say that Altoona is part of the Pittsburgh region, and I'll talk about that in a moment. So I just want to tell everyone that you your microphones are muted, and you have an opportunity for chat. But please be cognizant that this isn't an opportunity to sell your wares. This is an opportunity for us to just indulge ourselves for 30 plus minutes with our guests today and talk about the topics at hand. And I know we have a lot of things lined up. Jonathan will talk about that as well. For future conversations. I know that we're packed for for the rest of this weekend, next week as well. So here we go. We're gonna dive in. We're gonna meet Justin Mendell, and Justin is is the chairperson of the Alleghenies Angel fund. And we are going to make sure that we know what that is, what he's up to, and how that matters to all of you who are listening on the call today. So good afternoon, Justin, thank you so much for being with us. And before we talk about the fun, we like to get to note who you are, who is Justin, know that about your journey and who you are and how it's led up to the work that you're doing right now?

Sure. Thanks for having me on today. Always happy to talk about what we're doing at the Alleghenies Angel fund. We spend a lot of time in Pittsburgh, in the greater Pittsburgh region, which I'm sure we'll talk about a little bit too. My background comes from the tech and telecom business. I actually grew up in California. And then after college, was based in London, in England and worked for mobile telecommunications providers around the world, helping them with strategy, business development, and business management. Other topics. Did that for the better part of 10 years. And then about seven years ago moved to Pennsylvania where my wife is from start a family that big new adventure. I spend most of my time now during the day developing commercial and residential real estate in and around Pennsylvania. And about two and a half years ago, began working with the southern Alleghenies Planning and Development Commission. To start what now as the Alleghenies Angel fund. We, we closed on our full capital raise in February of this year, about $1.3 million, just more than $1.3 million. And we've made five investments so far.

What's what about the guitar in the background?

That is a COVID hobby. I played a little bit when I was younger, and trying to get my kids interested in music. So my wife takes piano I'm in charge of the guitar.

So get any genre

pop rock, blues, you know.

And and now you know what we sometimes do something where we make people perform randomly. So depending upon how this goes, we may ask Jonathan and I that's a thing that we did.

We'll take requests from the crowd if you like and

not only that, but guitar is sitting right there staring

Oh, maybe maybe I should move my screen next time.

You might want to do that

towards the drums and you're really in trouble.

So let's just talk about so you launch this fund. It's it's a small fund, but it's certainly meaningful for companies and you know, as companies start, so what can you tell us like about the original the team? The reason why what your passion is? And what is the greater Alleghenies actually mean?

So the fund is in part, sponsored by the southern Alleghenies Planning and Development Commission, I'll talk about I guess their their region is a six county agent that encompasses Blair, where many of our members are from, but also Somerset, for Cambria, Westmoreland County. And, and a couple other geographies. Their funding for us came through the Appalachian Regional Commission, which is focused on economic development in the greater Appalachian area. Our fund is free to invest in whatever venture or geography that our members choose to invest in, we're member LED. So we we do that make those decisions in a consensus driven way. But, you know, after our primary mission of returning capital to our members, our secondary mission is to really support ventures in the central and western Pennsylvania region. And we spend a lot of extra time looking for good opportunities in this area. So of the five investments we've made, so far, three of them are companies that are based in or around Pittsburgh, trout, and I'm sure many of the people on the call today probably heard of them travel with conservation labs, and pit moss.

Yeah. Nice. Yeah. That's great. And so what have you, what has surprised you in terms of anything sort of outside of Pittsburgh, like proper, what you've seen in those other counties? What has what has intrigued you what is surprised you how much entrepreneurship is really going on there?

There's a lot of entrepreneurship going on. We're fortunate that the Ben Franklin organization is a part of our fund. And so we get exposed to a lot of very early stage entrepreneurs in in our region and Greater Western Pennsylvania. And in fact, all over the state, we also participate in a couple of syndicate networks, that is a great source of deal flow. For us, I would say, for our immediate area. You know, a lot of the entrepreneurs, you know, come from non entrepreneurial backgrounds. And so when they come to us, sometimes, they have a great idea and a lot of drive, but perhaps the concept needs to be a little bit refined. Our members like to see post revenue ventures, probably a little more than than pre revenue, although we are evaluating a couple of pre revenue opportunities right now. And that's probably more, you know, true angel investing, I describe what we do is a seed stage venture. I don't know if I would say I'm surprised by anything we've seen. But I would say that very quickly, we we we realized that to support a healthy pipeline of opportunities, we would need to look, you know, at the entire western Pennsylvania region, and not not just what's really local us.

So are there any trends that you're seeing? I mean, because you've got to talk to a lot of people, a lot of founders to even you know, select a company to invest in Are there any trends that you're seeing from where you sit?

Um, you know, trends trends in our local area? No, I would say that we have been pleasantly surprised that we have continued to see a lot of active deal flow despite COVID in the economic fallout from from the pandemic, a lot of our syndicate funds, spend time on biotech and therapeutics and healthcare related ventures, we tend to focus a little more on ventures that are in other industries, we find that the therapies, particularly therapeutics and medical devices and things like this have very binary outcomes. They're they're dependent on regulatory approval, and they often require several follow on rounds of capital for investors to really get their money back. We gravitate towards ventures that typically have a manufacturing component. A lot of the software technology opportunities we look I have a hardware component, the goal along with that, and I'm not sure if that's because of the just the universe of opportunities that we see in in Pennsylvania or It's something to do with kind of what is tangible for our members. But but that's kind of a little bit more where we where we focus relative to maybe some of these other

seed stage Angel stage venture funds.

And so are you looking at when it says the Allegheny So does that mean that your commitment is really in a region?

It's not I would say that, you know, because, you know, we have over 50 individual and family members in our fund, you know, who are actively, you know, screening and reviewing opportunities and voting on the companies that present to us and are co investing alongside our fund. So, you know, it's not just directing the funds capital it's, it's putting additional private capital to work in these opportunities, because of most of our members are in Bedford Somerset Blair, Cambria County, that's, that's a little bit more of like where we give a second look. But we've invested in companies and a company called Gilson snow, actually, I'm wearing their hat today. They're based near Williamsport and mifflinburg. We invest in a company in Lancaster. We're in due diligence with firms that are based everywhere between Leeds Dale and Philadelphia.

What is Gilson? Jim

Gilson is a manufacturer of snowboards and skis. They have two things that make them very unique. One is a patented design for the for their skis and boards. They're not flat on the bottom, they have ridges. And the theory is that treating snow as a liquid rather than as a solid is a better way to design that. That board or that ski to take advantage of other properties of snow, they're more fun to ride. they're easier to learn on fewer edges and you know things like that. If you look them up very, very highly reviewed, very strong brand among with a very strong group of loyal customers. The reason we invested in them actually is not because of the board design. What what Gilson has been able to do is actually re engineer the entire manufacturing process for skis and snowboards. And so every ski pair of skis and every board is actually custom built to order. After the customer makes that order, you can choose a stock graphics packages that they have, or you can design your own. On Instagram, they have a number of artists who design for them. And they target different affinity groups. So if you want a board that has a Carnegie Mellon, design, Ohio State, Pennsylvania State anything like that, or Pittsburgh Penguins, they have partnerships with all of these brands to do that, and so they carry very low inventory. They and they're able to adapt very quickly to customer preferences and provide a very unique product to their customers.

So do you snowboard?

I do? It's passion for me.

It is. So you're you're you can have fun on both on every end of that. Right. That's

Well, yeah, I mean that that was one of the things that really attracted me to that opportunity. But once I got a chance to get to know, Nick, you know, it was really clear that there was a beyond just my passion. There was a real investment thesis for investing.

Mm hmm. But still, it's always great to to combine that. Are there any other companies that you think that Pittsburghers might not know about that you want to highlight?

So in in the Pittsburgh area, we do well, I should say we do not have any current companies that are in due diligence. Actually, that's not true. So we are looking at, we've had pitch, I guess I could talk about everybody's name. We've had pitches recently from a company called neater feeder, which many people may have heard of.

Yeah. And we're

looking at that opportunity. And we've also had a pitch recently from a company called ham synergistics that we're taking a look at to I think what they're doing is really interesting. So trying to thank I mean, you know, we we've reviewed a number of opportunities recently that a couple Which unfortunately I can't talk about yet. But you know, the cover that they're all I'm trying to think about them. They're all either devices or manufacturing or have a software and hardware combination.

And so I think Reed is asked a question about size of chaps read is at Carnegie Mellon. And he is in the tech transfer office. He has been involved in startups for a long time.

Yeah, that's a great question. I can see that here. Thanks. So we from the fund, we plan to invest between 50 and $100,000 in individual opportunities, and that would give us a portfolio over the life of the fund of somewhere between 15 and 20. portfolio companies, however, our members co invest alongside the fund. So typically, our investments are somewhere between 130 and $150,000, including those co investments from our members. We've also done a number of syndicated deals. So you know, we have the capability to represent, I would say, three to $500,000 of equity capital or convertible note, you know, commitments

through our syndicate networks.

And so but but that's a small, you know, relatively small number. So we typically are not a lead investor. We we like to participate in deals where there's another recognized Angel fund or institutional investor or strategic partner or something that really makes us comfortable that someone else is also doing due diligence.

And so what can you talk about your founders, like what was what was the impetus for this and anything about the founders that they were passionate about?

So the fund the fund, founding group is myself.

gentleman called john hurl, many people may know, he runs an accounting and tax credit and tax credit planning group here in Altoona. The rest of our executive committee is comprised of Steve Houser, who's a representative from the SA p EDC. Mark Ritchie, who is runs a family business here in Blair County, Matt Stuckey who runs a network of cars successful car dealerships here. And we have a couple of additional at large at large members. We get a lot and I will mention that the Appalachian investors Alliance we get a lot of support from that or entity. They're based in in sort of the core aaRC region, Appalachian region, and they provide support services to Angel funds like ours across the Midwest, due diligence support term sheet negotiation, administrative back office and general guidance for you know, how to manage the fund, very powerful organization. And they're one of the sources, one of our syndicate networks, and I sit on the board of that organization as well.

So you what, So, tell us a little bit about what's happening in Altoona these days. How's it going with COVID there? Are there any businesses that are proliferating? Or what's it like for a guy from California living out in Altoona?

You can imagine,

um, I'm trying to imagine.

I mean, I think, you know, there's a couple things going on. One is, you know, this is an area where, you know, you can, you know, I, I could really take advantage of, of the outdoors, you know, the, the natural beauty that exists here, that's what's attractive to a lot of people. And, you know, it's an opportunity to get involved in a lot of business opportunities, like the angel fund, that that are more difficult to start in other regions and may present more competition in other regions. So, you know, in real estate is the same way. You know, Western Pennsylvania, in my view, presents tons of opportunity for venture for real estate investing for for growing companies. You know, there's abundant, high quality people that are willing to work for a lot of these young companies. You know, we have some some startups that are here and they have great teams around them. And so I think, you know, that's something that we see here. Obviously, this area has been impacted like every other I would say the culture is a little more or less, stay at home and a little more just get out and get on with it, which you know, for good or bad is the way it is here.

You know, but,

you know, we see we see with with, with the exception of a few, you know, retail problems, you know, that companies are generally performing well.

Well, what do you see is we're headed into the winter. What do you think? I mean, obviously, you hope for snow. So, yeah,

so I mean, I will give you my this is not the Alleghenies Andrew Fun House, you my my personal view here is that the next few months are going to be really difficult for everybody, you know, the election notwithstanding. COVID is here and coming back in a very big way. Schools are going to have to make decisions on how they stay open, and how they allow people to go to work, businesses are going to have to make decisions on how they continue to operate remotely. And people are going to have to make decisions on you know, what they feel safe doing for the holidays and through the winter. You know, I think that the upside for companies like Gilson and some of the other, and we haven't we have it, we're invested in another company called reflection that makes a cognitive neuro cognitive neuro visual improvement device and software platform for that space, you know, they have the opportunity to benefit from people who are going outside, to embrace the outdoors. COVID is I mean, everybody knows you couldn't get a bike for love or money over the summer, I think that that people are going to find in the winter, you won't be able to get a pair of skis or snowshoes or, you know, you know, across country get ups. I mean, these are going to be things that I think everyone is going to flock to and and I think there's a lot of opportunity in that. So.

So you have two more questions here. Jonathan, you want to get one from David and ones from the Kimball start with Lee real fast? Does being based in a smaller market make it harder to find deal flow and capital? Or is it easier to network and stand out?

A good question. Yes. Obviously, you know, what, what is difficult if we narrowly confine our geography is there's just fewer people, and there are fewer companies. So we try to look broadly and we try to, you know, give an extra look, I think, to entrepreneurs that dinner in the western Pennsylvania region. But, you know, there are a lot of business people in western Pennsylvania that are interested in investing in early stage companies. And so we, we found that capital raising actually wasn't the biggest problem that that was something that went pretty smoothly, surprisingly, I guess. But yeah, I mean, it's, you know, we want to make sure that we're uncovering, you know, the best deal flow that we can and, you know, it's we're not in a major Metro.

Absolutely. And, and Dave Raiden, wants to know, do you consider software only, or software as a service, as is typical investments in this

kind of companies, at both everything. So, you know, a lot of companies use their hardware as an entree to becoming a software only or a SAS only platform, you know, obviously, like investors love those sorts of things, because they are easily scalable, present higher margins, you know, have the opportunity to be bigger opportunities. But, you know, we don't we don't shy away from something that has a hardware component, because often that's a great way to get installed in your customer base.

What about you? Do you work in any of these companies yourself? Do you try to flex a little bit of your expertise and your experience by working with the companies not just giving the money?

So we do I sit on the board of Gilson snow, actually, and we try to provide advice to to companies where we can, you know, the advantage of having 50 members is that there's always going to be somebody in our group who's a domain expert in whatever area it is, whether that's software, hardware, manufacturing, construction, real estate, therapeutics, devices, etc. So, that is one of the powerful elements and we can provide more than just capital across a number of different industries. The way that we approach due diligence is is obviously both to understand you know, the return analysis for For us, but the way we like to approach due diligence is is to help our companies be ready for the next stage. So typically, you know, there's a series a or a, you know, a priced round that comes 18 to 24 months after we put our capital in. And the way we look at our due diligence is, is this company, or how can we make this company ready for institutional investment or for a price round? So, you know, it's a very collaborative diligence process. And the questions we ask are, you know, like, why aren't you doing this? or Why are you doing that? It's much more like, you know, when you get to the next step, these are the questions you're gonna get asked. So let's think about that now. And, and, and get ready for that. And that's one of the ways that we think we do things a little differently.

So first of all, hats off to you for moving to Altoona, and for building up this region, and pulling people together and trying to build the future of entrepreneurship and for the companies that you've invested in to date. It's, it's fabulous, and I don't think we're gonna get much snow, I don't want to hear

that. I don't wanna

I know, I didn't, I didn't want to tell you that, but I'm just gonna, I'm just telling you, you're living in a beautiful region. I I, the next time that we talk, I would like to hear something that you're playing on the guitar, that would you know, that Oh, pretty important to me. Okay, so you really need to practice something. But um, I, if people want to reach out to you, can you should they just go to your website,

I'm happy. You know, what I was gonna say, in closing is I I'm in Pittsburgh almost every week, for one reason or another. We are always looking like like, lots of funds, we are always looking for contacts with new ventures, new entrepreneurs, different founders. I love making those connections, I try to do a lot of screening for the fund, I think of my role primarily as deal flow generation. So, you know, despite our partnerships with the Pittsburgh tech Council, you know, great talking with blue tree, like we love to just, you know, hear from from everybody.

What's the best way for people to get a hold

on, you can go on our website. But you could also just send me an email, it's probably the best thing to do. But I'm happy to, you know, be contacted for advice and meetings, opportunities. I like that.

Thank you. Thank you. Thank you for Thank you for taking the time today. And I just want to tell everyone that we also we actually have, we have me Miho Mehta from any adventures on Monday. So Justin, you might want to tune into that one as well. And we also tomorrow, we have county executive rich Fitzgerald, who's coming back, I think, for the third or fourth time to talk to us during COVID. So thanks to Justin Mandela, for being with us today. Thank you for your leadership and your commitment. Really appreciate that. And but people want to reach out to them, you know where to find them. It's me and they help just let us know. And thanks, Jonathan, for being with us. appreciate everyone joining us stay safe. And we'll see you here tomorrow, same place, same time. Thank you very much. Thank you.

Transcribed by https://otter.ai