Angel investors are the first to take a risk — or turn people away — in funding for hopeful startups
Blue Tree Capital Group, a Wexford-based investment firm, sees between 600 and 800 applications from startups looking for funding every year.
Of those applicants, the group can only put their money toward about six.
It’s not easy to say no to the other hundreds of companies. And it’s not easy to be totally confident in the success of the lucky six — a stress that never quite up eases up for investors, according to Catherine Mott, Blue Tree’s founder and CEO.
“I tell people investing in startups is like riding a roller coaster,” she said. “If you don’t have the stomach for it, don’t do it.”
After nearly 16 years in the investment business, Ms. Mott has developed a stomach for it — or at least some coping mechanisms.
Now a board member for tech startup accelerator Innovation Works Inc., a member of the board of directors for the Pittsburgh Tech Council, and a
member of the U.S. Securities and Exchange Commission’s Small Business Capital Formation Advisory Committee, Ms. Mott got into the venture capital world after she successfully created and sold a financial tech company.
Following that success, her business partner at the time went off to build boats in Maryland. But Ms. Mott wasn’t ready to retire yet.
Instead, she decided to start an angel network.
In the investment world, an angel investor is someone who funds a startup almost at the very beginning. Angels give startups a smaller amount of money and ultimately have a smaller stake in the company than the other venture capitalist investors, which get involved at the later stages.
The angel’s dollars can be the deciding factor between whether a startup gets up and running or fizzles out.
Ms. Mott’s firm, the Blue Tree Capital Group, started out as the Blue Tree Allied Angels in 2003. Later on, the group added a venture capitalist branch, called the Blue Tree Venture Fund.
The Blue Tree Capital Group has invested more than $50 million in about 40 startups.
The group has had big success stories like Wombat Securities Technologies — a cyber security startup acquired by ProofPoint Systems Inc. that has grown from just a handful of employees to about 150 — and FlyCast, an entertainment content startup acquired by Intel.
When choosing which startups to invest in, Ms. Mott said there are a lot of quick nos.
Investors first consider if they think the idea has the ability to make $30 million in five years, if the startup is in a market that isn’t too crowded. If there is a lot of competition in the same space, the investment is just too risky. They also want to know if the leadership has some experience and seems coachable.
“You’re very dependent on the people and having the right people with the right attitude and the right leadership skills is the most critical thing that you’re investing in,” Ms. Mott said. “It’s also the hardest thing to assess.”
The assessment of leadership accounts for about 30% of the decision, she said.
If the startup secures a yes from investors, the Blue Tree group contributes more than just dollars. It
“You’re very dependent on the people and having the right people with the right attitude and the right leadership skills is the most critical thing that you’re investing in. It’s also the hardest thing to assess.”
Catherine Mott
will help out if the founders run into any trouble.
Ms. Mott learned how to play the “tech curve,” as she calls it — or knowing what the right move is and when to make it — through trial and error.
In one instance, the investors learned late in the development phase that the startup founder’s previous company legally owned all the technology and ideas.
Now, Blue Tree asks for all prior work contracts before starting the investment process.
In another case, Ms. Mott and her network encouraged a startup to sell to a larger firm. They later learned that firm already had about 40 employees working on the same product, so the window to be acquired was even smaller than they realized.
“You’ve got an optimal time to sell, and if you’re not paying attention, you’re going to miss that,” she said.
Between 2009 and 2018, more than 90 Pittsburgh startups “exited,” or made money for their investors
through acquisition by a larger company or their own growth. Those companies generated $10.2 billion in exit values, according to a report from Innovation Works and Ernst & Young LLP.
In 2018, Pittsburgh had 147 startups with a combined $550 million invested.
Of the 60 firms that invested in Pittsburgh startups in 2018, half made their first investment in the region that year, pointing to an increased interest from outside investors, the annual report stated.
Ms. Mott has noticed the same thing. The Blue Tree Capital Group has begun holding routine calls with outside investors to share what is going on in the city and learn what other firms are looking at.
Though it is great to see so many startups gaining traction, she said it would be even better if the investment came from local dollars.
Local investors mean the startup is more likely to stay in Pittsburgh and bring all the economic benefits that come with it — like more jobs, more spending in the local economy and more tax dollars.
“The quality of the investment opportunities are 100 times better, but what concerns me is there’s not enough capital,” Ms. Mott said. “For this ecosystem to really thrive, we need other funders.”
The work of keeping that ecosystem running never really slows down, she said. Even when a company looks like it has made it big and is generating $70 million in revenue, it can drop back down to $40 million in the blink of an eye.
To cope, Ms. Mott focuses on the optimistic parts of the business. The money being invested has the potential to not only fund startups that will change the world, but also to change the lives of the people coming up with these ideas, she said.
Those in the angel investing business are passionate about entrepreneurs and solving big problems, she said. So for the lucky six startups that secure funding from the Blue Tree Capital Group each year, Ms. Mott and her colleagues expect big results.
“We want to see that our money is going to work right away,” she said.