The Maine Angels announced this week it has raised $2.4 million from local angel investors to create a pooled investment fund to invest in early-stage, high-growth companies.

The Dirigo Angel Fund I closed on June 29 with minimum investments of $10,000 from 46 individual angel investors (including 21 women) and seven Maine banks, according to a press release from the Maine Angels.

“This encouraging subscription volume indicates many are bullish on entrepreneurs, innovation and the growing economy,” the press release said.

The fund will seek to invest in 12 to 15 companies over the next two or three years with a target of at least 50% of those companies based in Maine and at least 25% owned, founded, or led by women, according to the release. The Dirigo Angel Fund Investment Advisory Board, composed of five Maine Angels members from across the state, will act as the screening committee for the fund investors.

A ‘sidecar’ boost to Maine’s existing angel investments

The Dirigo fund will serve as a significant “sidecar” to the investments made by Maine Angels’ individual members and help amplify the positive impact the Maine Angels already has on Maine’s startup and innovation community, according to Sandra Stone, chair emerita of the Maine Angels and a member of the Dirigo Investment Advisory Board.

In 2019, the Maine Angels and the Bangor Angel Fund III (more on the Bangor Angel Funds below) together invested a total of $3.7 million across 16 deals, most of which were in Maine-based startups, including Amplify in Scarborough, NearPeer in Portland, Cerahelix in Bangor, and Reconnect in Cumberland.

Pooling investments will also help give Maine’s angel investors a bigger seat at the table, Stone told Maine Startups Insider.

“Investments from individual investors plus fund investments could take $300K+ of a raise, enabling a Board or Board observer seat and qualify for the desired level of information rights that are sometimes reserved for major investors of over $100K,” she said.

Besides that impact, investing as a fund as opposed to as individual angel investors has at least two additional advantages, one for the investors and one for the startup founders who accept the investments.

From the perspective of a new investor who may just be getting involved in venture investing, an investment of $10,000 (the minimum required to invest in the Dirigo fund) is easier to stomach (since anyone investing in startups should be prepared to lose their entire investment) and can be spread over several deals to spread the risk around. Plus, many startups require minimum investments of $25,000, $50,000 or even $100,000, which are amounts out of reach for more than half of Maine Angels’ members, according to Stone.

“The low unit price and opportunity to be as hands on as a new-to-investing member wants allows them to develop experience in angel investing and continue to build skills and confidence,” Stone said. “It is a good risk mitigation strategy through diversification across 12-18 companies, building a basket of angel investments upon which to build one’s future private investments portfolio.”

From the perspective of a startup founder, accepting an investment from a fund as opposed to 10 or more individual investors is preferable as it helps keep their cap table less cluttered and reduces the administrative overhead required to communicate with dozens of individuals rather a single fund manager. Ken Carle, a financial advisor in the Bangor area, will be the new fund’s manager.

Companies interested in seeking an investment from the Dirigo fund need to go through the Maine Angels funding request process, which is detailed on its website.

Makeup of the Dirigo Fund

Of the 46 investors in the new fund, all are Maine residents except two New Hampshire residents. Of those, 26 are current members of the Maine Angels and 21 are women (an impressive 46% of total investors). It also introduced 12 new angels into the local investment scene, according to Stone.

Seven Maine banks also invested in the fund, which aligns with their local community funding requirement: Bangor Savings Bank, Bar Harbor Bank & Trust, Camden National Bank, First National Bank, Katahdin Trust Company, Machias Savings Bank, and Saco & Biddeford Savings Institution.

Successor to Bangor Angel Funds

The Dirigo Angel Fund I is a successor to three existing funds created by the Bangor Angels since 2014.

While the Maine Angels has always operated as a group of individual investors who while they screen startups together and share resources and information, their investments were always on the individual basis.

On the other hand, the Bangor Angels, which was created by a small group of Maine Angels from the Bangor area, decided to go the route of pooled investment funds, a scenario in which the individuals invest in the fund and then the fund, by a majority vote of the investors, invests as a single entity.

Bangor Angel Fund I raised a pool of $500,000 in 2014 from 18 small investors in Bangor, in partnership with Bangor Savings Bank, which made $50,000 investments in 10 companies.

Bangor Angel Fund II raised $1 million in 2016 with 28 investors, including 10 Maine Angels, while Bangor Angel Fund III raised more than $1.3 million in 2018 with 36 investors, including 14 Maine Angels.

All three Bangor Angel Funds are now fully invested, with BAF III making its final investment in December 2019. Fritz Oldenburg, the fund deal lead for those three funds, is kept busy as an active liaison of the funds and nurturing those 30-odd deals.