Angel Capital Group, RightSide fund confirm collaboration

By Milt Capps Last updated 2:44 p.m.

Published March 17, 2010

Comment

ACG-RightSide pact sounds good -- time will tell if it's more than a warm glow

Nashville's Angel Capital Group and Rightside Capital Management have confirmed their alliance.

San Francisco-based RightSide created some excitment in February, when the de novo fund revealed its new seed-investment model, which promises quick decisions for entrepreneurs and an aggressively standardized and automated applications and due-diligence process.

As reported by VNC earlier this month, Nashville VCs and others generally view the model favorably, albeit with some skepticism, due mainly to the assumed overhead costs of handling hundreds of transactions, with minimal front-end contact with ventures' founding entrepreneurs.

Yesterday, principals in Angel Capital Group told VNC they have created a new subsidiary, ACG Funding LLC, to collaborate

with RightSide. Participation via the subsidiary is considered an "enhanced" ACG member benefit, according to ACG Founder and Managing Partner Rachael Qualls (right).

The ACG-RightSide collaboration will not become active until sometime after July 1, the point at which RightSide says it will begin investing in technology-only companies.

Qualls, 31, said the new unit will provide a path by which Angel Capital Group member-Angels can participate as limited partners in the RightSide fund, by investing only $100,000 each, rather than $5 million each as RightSide generally requires of its direct LPs.

Angel Capital Group's progress since its founding three years ago has often been hard to quantify, from the outside. However, ACG recently earned props by having reportedly been the first outside money in on TrakLok, which recently became the first announced investment target of Innova Memphis, a TNInvestco-certified and -capitalized fund. Qualls said yesterday ACG continues to hold a stake in TrakLok.

Teaming with RightSide is the latest of a series of steps ACG has taken in an effort to gain increased traction.

In the past few months, ACG has added co-owner and Managing Partner Yogi Dougher (at left), and has established representation in Chattanooga, Knoxville and Tri-Cities, in the persons of Bill Pollard, Roger Kiger and David Hinkle, respectively. Initial VNC research on Pollard indicates a long career in senior real-estate development roles, turnaround management and bank-loan workout consulting. (Pollard's background will be updated, as warranted.) Kiger's own business is wealth management, and Hinkle does business as VPI Business Advisors, and promotes a specialty in tax-minimization advice.

Internally, too, Qualls has stepped into portfolio company BugleMe, succeeding former BugleMe CEO Debbie

Gordon, who, according to state records, left that role at least nine months ago. ACG's VP-Entrepreneur Relations Adam Thede serves as COO for BugleMe, a low-profile subscription-based celebrity-fan call broadcasting service, about which little is publicly known.

Qualls said some of ACG's current Angel investors have expressed strong interest in participating in ACG Funding. During an interview with VNC, neither Qualls nor Dougher would say how many active Angels ACG, itself, currently has aboard.

On Monday, RightSide Managing Partner Dave Lambert (left) told VNC that by allying with ACG, RightSide aims to draw on Angels' expertise as mentors to seed-stage firms, while simultaneously drawing on ACG's Angel network.

Qualls said ACG's network includes access to an Angel network in North Carolina and a proposed national network called the U.S. Capital Highway. Currently, the only identifiable "highway" segment is an organization that seems to overlay the Winston-Salem-based Inception Micro-Angel Fund.

Lambert stressed that only after RightSide has made its decision to invest in a given company, will local Angels be invited to participate.

RightSide principals have promised entrepreneurs who apply online for funding will get a yes or no within two weeks. "Yes" verdicts are accompanied by a term sheet that requires the founders' response within ten days. RightSide asks preferred equity in all cases and demands no board seats.

If it's still a go at that point, entrepreneurs who get a clean bill-of-health can expect to receive funds within three to six weeks, all of which translates into no more than a 10-week process, start to finish.

According to RightSide materials, entrepreneurs will be required to have a substantial investment in their venture, and, if they

aren't already doing so, the venture's management-team members can expect to be compensated at no more than 50 percent of the market rate for their jobs.

Addressing the issue of minimal or even zero face-to-face pre-investment contact with the entrepreneurs funded by RightSide, Lambert said while it will often be true there is no in-person meeting, there will nonetheless be "massive" due diligence on each venture proposal, with particular attention to the personalities and track records of the start-up's management team.

Lambert said the due-diligence will often include contact with entrepreneurs' former employers and associates, as well as a "deep dive" investigation via data sources. He said while the process is simplified and accelerated, prior to receiving investment entrepreneurs will be obliged to complete extensive applications that more closely resemble mortgage applications.

Dougher indicated that he has learned that RightSide is using very advanced psychological profiling, as part of the mix. ♦