Tucson’s Desert Angels group was among the 10 most active angel-investing organizations in the nation in the first quarter, after cracking the top 10 nationally last year, according to a new report by a national angel group.
Angel investors are affluent individuals who are qualified under securities law to make high-risk private equity investments that can provide critical seed money for early-stage companies.
The latest Halo Report, released by the Angel Resource Institute, Silicon Valley Bank and the research firm CB Insights, names the Desert Angels among the top 10 groups by the number of deals they invested in during the first quarter but does not release those numbers or dollar amounts invested.
The Desert Angels invested in 11 deals in the first quarter and surpassed that in the second quarter, said Curtis Gunn, chairman of the Desert Angels.
Gunn said the amount of money the group invested in the first quarter wasn’t immediately available, but this year to date the group’s members have invested some $3.6 million in 23 deals, including multiple deals for some companies.
The Desert Angels ranked eighth in the nation for the number of deals in 2013, with 23 deals worth $5.6 million, Gunn noted.
Tucson is among the smallest communities represented on the list of most-active angel groups, along with organizations based in major financial and tech centers like Boston, Philadelphia, Seattle and Silicon Valley.
Angel investment is particularly important in Arizona because a lack of venture-capital firms in the state has been cited as an obstacle to growing startup businesses.
“I’m incredibly proud and gratified with the members, stepping up to make investments to support our early-stage ecosystem,” said Gunn, who last year was appointed to the national board of the Angel Capital Association.
“The dearth of venture capital in Arizona leaves a pretty a large vacuum for us to fill,” he said, adding that the group has collaborated with the Arizona Technology Investor Forum, a Phoenix-area angel group, to vet and in some cases invest in Arizona startups.
Though the Desert Angels invest primarily in local and Arizona companies, the exposure from ranking in the Halo Report has led to more deals with companies out of state, including San Francisco, San Diego, and most recently, Boston, Gunn said.
The group, founded in 2000, collectively screens investment prospects, but its 102 members invest individually, though members’ investments may be matched by a pooled “sidecar” fund the group started in 2010.
Individual investments are confidential but in the first quarter, they ranged from $50,000 to $300,000, Gunn said, adding that more than 82 percent of the investment money stays in Arizona.
Among the local companies the Desert Angels invested in during the first quarter, Gunn said, were HTG Molecular Diagnostics; Salutaris Medical Devices, which has a new radiation treatment for macular degeneration; Instant BioScan, a maker of real-time microbial monitoring systems; MSDx, which is developing blood test products for monitoring neurological disorders; and Calimmune Inc., which is in early clinical trials of a stem-cell therapy to keep HIV-infected people from progressing to AIDS.
Calimmune co-founder and CEO Louis Breton said the Desert Angels provide a critical source of early-stage funding for tech startups.
“If it wasn’t for local support, it would be extremely difficult to have biotech companies in Arizona succeed,” Breton said, adding that angel money also helps attract follow-on venture-capital investment. “It’s a very sophisticated group of people who have invested in multiple types of companies, not just the biotech sector, and they have succeeded in multiple areas, which is very important.”
Though many funded companies don’t succeed, those that do can yield high returns for investors through “exits” like mergers, acquisitions or public stock offerings.
A company Breton co-founded in Tucson in 2001, Cellz Direct, was funded partly by Desert Angels members and later raised millions of dollars in venture capital. The company, which supplies human cell products for drug research, was sold to a California company in 2008 for $57 million cash.
Breton credited Desert Angels co-founder Harry George, a successful businessman and managing partner of the venture-capital firm Solstice Capital, with recognizing the need to galvanize local early-stage investment, and he lauded Gunn for helping to drive growth and innovation in the group.