1 year after launch, Reno Seed Fund halfway to initial goal of 20 angel investments
- Part 1: ‘A dam about to burst’: Pipeline of startups eying Reno-Sparks bigger than ever amid COVID
- Part 2: Primed for a pandemic: Two Reno startups that are set up for success in the COVID era
- Part 4: Tech startup Bookit Sports newest addition to RNOX’s inaugural R.E.A.L. program this summer in Reno
- Part 5: Sparks-based NevadaNano inks marquee deal with Canadian firm
- Part 6: Lean and nimble: SaaS companies in Reno not slowed by pandemic
RENO, Nev. — A few years ago, while living in Southern Nevada, Gene Wong started to hear a buzz about the burgeoning startup ecosystem northward in the Biggest Little City.
As an angel investor for more than four decades, Wong’s interest was piqued.
“Someone said to me, ‘go up to Reno because they do things differently,’” Wong recalled. “So, I started to come up here and saw there was a difference. Part of the difference is the proximity to the Bay Area — a lot of entrepreneurs and companies were moving here.
“But, part of the difference is the Reno community really gets behind companies, even though Reno’s a fifth the size of Vegas. That was very stimulating to me.”
With that, in 2018, Wong moved to Reno. Less than a year later, he became the managing general partner of a newly launched fund for early-stage companies: The Reno Seed Fund.
Composed of 40 limited investment partners, the $2.75 million fund was born of a federal Office of Innovation and Entrepreneurship grant designed to spur the seed capital ecosystem in Northern Nevada.
The Economic Development Authority of Western Nevada received $300,000 over three years to help create the fund and its supporting programming, according to previous reports.
With roughly a year in the Reno Seed Fund’s rearview, the Northern Nevada Business Weekly caught up with Wong to see how the pandemic has impacted the RSF, what the fund is looking for in an early-stage startup, and where things go from here.
Q: What has been the Reno Seed Fund’s goal and focus since launching?
Gene Wong: The plan is to invest in 20 companies where we would be the lead investor over four years. We’ve invested in 10 companies in 15 months, so we’re probably going to reach the lead investor type deals within 30 months.
We’re focused on what Northern Nevada is good at — hospitality, tech, IoT, blockchain, advanced manufacturing. Our 40 limited partners run the spectrum from entrepreneurs who have started companies here for the second and third time and they realize — coming from Silicon Valley and the East Coast — that you have to support local entrepreneurs. We also have real estate people, accounting people, cannabis people, insurance people … you name it. We’re a very active group.
Q: How many of the companies the Reno Seed Fund has invested in are local?
Wong: Seventy percent of the deals we do are Northern Nevada. And we do 30% syndications to develop relationships with other angels outside of the state so we can attract capital into Nevada.
Q: How much can the fund invest into any given company?
Wong: The way it works is the normal seed round is between $500,000 to $1 million. The fund can invest no more than 5% of the fund. Of the 10 investments, the history is that our limited partners will co-invest in the fund on the ratio of 3-to-1. So if the fund invests $125,000, they’ll invest $375,000, at least; in some cases, they’ll invest more.
Q: What’s the largest investment the Reno Seed Fund has made?
Wong: Our largest investment so far in a single company between the fund and its limited partners was BlocWatch, which is a company that monitors the blockchain. We invested $780,000 in total in that company.
Q: What areas are the fund interested in that it hasn’t really invested in yet?
Wong: There are lot of people here who are dreaming up really good ideas in healthcare and fintech.
Q: What is the Reno Seed Fund looking for in a startup?
Wong: The average angel group, whether it’s a fund or angel network, two-thirds of the deals are pre-revenue. But we’re looking for more than an idea; it has to be a product-market fit. In other words, they have to develop a prototype — what they call an MVP — and they have to begin to generate some revenues. If they don’t, they have to be within 12 months of revenues.
Half the deals that we’ve done are post-revenues. That’s not a guarantee of success, but it does mitigate risk because they have customers. Their runway … they can generate cash flow, but they usually need additional capital to do something to really generate scale, which is recurring revenues. Everyone wants to invest in scalable businesses. It’s not easy to find them.
Q: How has the pandemic affected the Reno Seed Fund?
Wong: COVID has affected every investor. I would say it affects you in two ways. No. 1, you get a little more cautious, which means you slow down. And No. 2, the VC valuations are down at least 20%. Let’s say it was an $8 million valuation, now it’s $6 million. So, that’s a big deal.
The other thing is a lot of people — to mitigate risk in this environment — they’ll invest in what they call later-stage deals. They have a higher valuation, they’ve raised more money, and they have more traction, more revenues and more customers.
We will invest right now in our portfolio companies that are doing well. Some are doing well; some have been affected by COVID and will lose three-to-six months of revenues and just slow down. And then we’ll invest in new companies. And we will invest in later-stage companies if companies that have really raised a lot of money and are doing revenues because it will mitigate risk.
An angel should be satisfied with 10-times return. VCs want 30-to-50 times return. When we invest in later-stage deals, we might not make 10 times the money. But, if we can make 3-5 times our money, we’re happy.
Q: Where do you see things going from here?
Wong: We’re relatively new. I think there’s a plan and if we have progress, there are people here and groups here that are investing a lot here locally, but also investing a lot outside because they have to diversify their assets.
But I’m very excited about Northern Nevada. It’s a unique place. If I knew what was happening here 15 years ago, I wouldn’t have spent 15 years in Southern Nevada, I would’ve moved here sooner.
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