Written by Ian McHenry / Author of this article, investor

A Great Startup Ecosystem

Note:  This post is not investment advice, and is intended for informational purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

Santa Cruz is on the cusp of being one of the great startup ecosystems in the world.  The one major gap is a dynamic, local source of early-stage funding.  

We already have most of the major components needed, including:

Startups

We now have a growing number of Santa Cruz venture-backed startups, as well as two major unicorn exits (Looker and Joby).  We have two companies (Jane Technologies and Paystand) who have raised nearly $100m and are on the cusp of becoming unicorns.   And the pipeline of new startups is growing rapidly.  

The two major exits we’ve had are particularly exciting.  Exits help the flywheel of a startup ecosystem in two major ways:  1) they produce millionaires who can become angels, funding the next generation of startups.  Ex-Google and ex-Facebook employees become some of the most prolific sources of early-stage capital in Silicon Valley.  I expect we will very shortly see the same here in Santa Cruz with Looker and Joby.  2)  they produce the next generation of founders who want to start their own company.  I’m already seeing this with Looker employees and am excited to back as many of them as possible.

A Major Research University

Silicon Valley had Stanford and we have UC Santa Cruz.  Other mini-hubs like Boulder and Santa Barbara (which has produced nearly a dozen unicorns) likewise have major research universities.

A Robust Community

Between Santa Cruz Works and NextSpace, we have all the basic elements needed to have up and coming startups get mentorship and connection to others.

Creating an Angel Collective

The major remaining piece is to have a broad network of angel investors in the community.  We’ve been lucky to have the Central Coast Angels fill this role over the years but it’s time we expand that to dozens if not hundreds of individual angels who can come together to fund and provide mentorship for the next generation of companies, connect them to their networks locally and over the hill in the Valley, and help them raise follow-on funding from top tier investors.

I’ve been an active angel investor since I (partially) exited the company I founded (Beyond Pricing), investing in optimization SaaS companies but also trying to invest in Santa Cruz companies (like ROOMDEX).  While I can provide a bit of capital and a bit of mentorship, I’d like to help others in the community come together so we can, as one, provide a lot of capital and a lot of mentorship.

If you are an active angel investor or would like to start (note, you must be accredited), please fill out this survey:  https://aclx8d0k025.typeform.com/to/XHh9yAnW

You might ask yourself whether or not you should invest in startups?  Here’s a great overview from AngelList on what to consider (again, talk to your financial advisor as this is not investment advice):  https://angel.co/investing

Basically, they advise investing no more than 5% of your net worth and planning to invest in about 20 companies.  The main issue for most people is that, given that most startups want you to invest at least $10,000 as an individual angel, which would mean you would need $200,000 to invest in 20 companies and $4m of net worth to be under the 5% guidance.  However, AngelList has lowered this barrier by popularizing syndicates.  A syndicate allows you to invest as little as $1,000 along with other smaller investors and syndicate that investment into one lump sum.  What that means is that it lowers the barrier by a factor of 10, so you could invest in 20 companies with as little as $20,000.  By creating syndicates to invest in Santa Cruz companies, we can make it easier for both investors and founders to fund startups locally.  

One final note:  many investors, especially from Silicon Valley, have asked me whether it makes sense to invest broadly in Santa Cruz.  When you look at the 20 or so companies that have raised over $1m of venture capital from institutional funds (funds that have over $25m in size and over 20 investments), your MOIC (multiple on invested capital) is well north of the 4x that most top tier funds target.  

If we can form a collective of angel investors, we can aggregate our impact and together, help strengthen the vibrant startup ecosystem in Santa Cruz.

If you’re interested, fill this out (note: not a solicitation to invest): https://aclx8d0k025.typeform.com/to/XHh9yAnW