New Orleans is making its mark as an entrepreneurial hotbed, with multiple incubators fostering business ideas into fledgling companies. Success stories have emerged from the likes of Idea Village, 4.0 Schools and the BioInnovation Center.
A steadily growing list of locally spawned startups -- Kickboard, Dinner Lab and Lucid (formerly Federated Sample) to name a few -- is bolstering the city's reputation.
But in order for more emerging companies to stand on their own – and develop into sizeable employers down the road -- boosters in the local entrepreneurial community say New Orleans needs to attract investors with the means to keep cash flowing into new businesses. It requires someone with a stomach for risk, and the willingness and resources to eat a loss on occasion.
Friends and family can chip in enough money for a single business, and crowdsourcing can expand that reach. But it typically takes deeper pockets to take a startup from an idea with potential to a tangible product or service.
That is the angel investor, who typically provides the money needed to take a company from its nascent stage to a point where it can generate inventory or hire employees. Until recently, New Orleans has struggled to build a solid base of these front-end investors.
Enter Mike Eckert, former CEO of the Weather Channel, who arrived in the city in 2013 and helped pull together a group of independent investors to form the NO/LA Angel Network. His vision included those already financially engaged in the New Orleans startup scene and angel investors around the state.
"There was no one market in Louisiana generating enough deals for those local angel investors," Eckert said. So he set about building the network to identify and finance businesses around the state. A key qualifier for companies seeking the network's support is that they maintain their base and concentrate their growth in Louisiana.
NO/LA Angel Network's membership has been on a rapid ascent, growing to 114 within a year and a half -- well above the average size of 68 among its peers in the national Angel Capital Association. Since making its first investment in October 2014, NO/LA Angel Network has put more than $2 million into local early stage companies, including Servato, MicroBiome, SmartPak and MobileQubes.
While their names have yet to reach household status, these companies and others are part of the buzz New Orleans is generating on the national startup scene. Even this brief history is enough to raise awareness of the city among outside angel investors.
"Angels are always looking for good deals, and there's interest in Louisiana," said Marianne Hudson, executive director of the Angel Capital Association. "There's a curiosity about New Orleans."
Tim Williamson, co-founder and CEO of Idea Village, said this growing attention from angel investors is part of the anticipated evolution of New Orleans as an entrepreneurial center. As new companies scale upward, he said, they lean on the professional community for guidance. Incubators offer access to lawyers, accountants, and bankers, and angel investors are typically part of this supporting cadre.
Williamson expects more angel groups to form locally, with breakout entrepreneurs "making exits" and seeking to put money back into the organizations and programs that fostered their growth.
"I think they care about paying it forward," he said.
It's that community spirit that helped Eckert persuade the Angel Capital Association to hold one of its annual Angel Insights Exchange in New Orleans, marking the first time the group will meet in the city. On Nov. 9-10, hundreds of investors will meet for idea-sharing and networking sessions in a members-only event at the Pan-American Life Conference Center. They represent 240 angel networks in an organization with more than 13,000 individual accredited investors.
That accreditation is important, Eckert said, because it means the investor can afford to lose his or her entire investment in a startup. According to the Securities and Exchange Commission, an accredited investor has a net worth of $1 million and makes at least $200,000 a year.
In addition to forging potential "syndicate" opportunities to pool local money with contributions from outside angel networks, Eckert said the exchange event raises New Orleans' profile among business investors.
"The idea is to showcase that New Orleans is back in a big way, particularly with the capital structure" needed to make deals, he said.
Servato, which creates backup power supplies and monitoring for computer infrastructure and is based at the BioInnovation Center, was the first company to tap into the resources of the NO/LA Angel Network. Co-founder and CEO Chris Mangum said the original plan was to seek $500,000 in "first round" financing from West Coast investors, but a meeting with Eckert convinced him to seek the backing of local angels.
The decision proved fruitful, with Mangum raising $750,000 quickly and linking him to potential syndicates for a larger Series A round of investment reaching $2 million to $3 million.
He and others point to Eckert as being instrumental in linking Louisiana startups with the right investors, which is critical when these backers join the management or boards of the new companies. Personalities and preferences come into play, and a complementary partnership is often the difference between failure and success.
Eckert has an ability to "match the hatch," said Mangum, using a fly fishing term describing a lure that closely resembles the insect that fish are most likely to eat.
Williamson expects more angel syndicates to forge financial ties to New Orleans companies as the city develops a talent pool of managers who specialize in leading early growth stage companies. With those people in place, he said investors will take a closer look.
"The only way syndicates can work is to have good people on the ground," he said.
With a critical mass of angels in place, the next phase would be attracting venture capital to New Orleans, Williamson said. At this stage, investment banks, specialized financial institutions and wealthy backers provide "Series A" money, the millions that allow a company to expand rapidly.
Williamson notes 75 percent of U.S. venture capitalists are based in New York, California, and Massachusetts. But in the South, he said there is no solid concentration of VC wealth.
With its star quickly rising in the entrepreneurial world, "maybe New Orleans is a hub in the South," he said.
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