Alaska has resources for building relationship risk capital
Alaska has a great, untapped natural resource: a pool of retired professionals, executives and entrepreneurs who are able to invest their time, talent and personal funds in our community. We have a tremendous amount of talent in people retiring in Alaska who would like to stay engaged in our community and be relevant in its development. Here is a way to harness this talent.
The 2012 Milken Risk Capital and Entrepreneurial Capacity Composite Index Survey reveals that Alaska in last place nationally in the availability of local risk capital. There is an important need to change the risk capital attitude and culture in Alaska.
I believe experienced Alaskans who are retired could form “relationship investment groups.” If these Alaskans formed one or more visible investment groups of 5 to 15 people comprised of individuals who like and respect each other, are highly respected by their peers in their fields, and have complementary skill sets, we could grow smart, active local capital that would enable business opportunities, mentoring networks and more local empowerment.
These groups would benefit from the “Warren Buffet effect,” where strategic partners and businesses would seek these groups out for their collective experience, connections and reputations.
We have the talent in Alaska with the time and resources to do almost anything we can imagine. The 2012 U.S Census Report shows Alaska has the second-highest median household income in the nation. This helps create the pool of wealth among retired Alaskans.
If we create one or more groups with different interests we could create an environment where opportunities will evolve that wouldn’t happen otherwise. Imagine if a group of 12 successful highly reputable retired executives and managers with complementary skills got together and created a resource-related technology commercialization venture.
These individuals would not normally have been part of the same organization during their business careers. Hierarchical organizations are not conducive to innovation and entrepreneurship. This group of 12 would now be considered part of their own self-created relationship network, and innovation and entrepreneurship thrives in networks.
The combined reputations of these individuals under the banner of a newly formed group would be much stronger and more valuable collectively than any of their reputations would be individually. Just creating an identifiable group of reputable successful individuals will attract attention and opportunities that none of the group members would have been exposed to on their own.
The history of the oil refinery in North Pole, near Fairbanks (now owned by Flint Hills Resources) is a good example of this business model. Dan Krause, an oil man from Oklahoma, saw an opportunity for a refinery in Interior Alaska. Krause knew there would be opportunities for someone to do value-added processing of Alaska oil.
Krause contacted Dr. William R. Wood, retired President of the University of Alaska, and shared this value added vision with him. Following several discussions, Dr. Wood helped organize a small group of reputable Fairbanks business leaders and formed Earth Sciences, the pre-development company of Earth Resources, the developer of the North Pole refinery.
Another, more recent, example would be Tyler Arnold’s Simply Social Inc., an international software company based in Anchorage. Ten experienced local businessmen and women funded, mentored and encouraged Arnold with a very modest amounts of investment capital, but also their time and connections.
Most such groups that form in Alaska pursue a specific opportunity. If we create groups to find or create more general opportunities we accelerate and enable the new business-creation cycle. These groups are frequently referred to as Angel Investor Groups.
Angel investors in the U.S. invested $20 billion in 60,000 new business startups last year versus the $30 billion that venture capitalists invested in 4,000 businesses. Angel investors generally invest locally and are the primary source of non-self-financed equity capital for new businesses. Venture capitalists generally invest in more established businesses.
One of the tools/opportunities for Alaska Angel Groups that we currently have available is the Municipality of Anchorage’s 49th State Angel Fund, which was established partly to encourage the creation of private Angel groups.
If a group of reputable individuals joined together and committed to a $600,000 pool of capital they could apply to the 49th State Angel Fund for a matching $600,000 equity investment. These deals can be constructed to favor, and encourage, the private investor.
For example, if the application were approved the 49th State Angel Fund would look for high equity type returns but might be willing to subordinate its investment to the private investors, so that they could get their initial capital back prior to the 49th State Angel Fund receiving its return of capital.
This is a great opportunity for private investors and a great opportunity for our community, and a way that the talents of experienced retired Alaskans can be pooled for the betterment of our state.
For additional information on creating Angel Fund Groups please free to contact me at email@example.com. Johnston is a volunteer advisor to the 49th State Angel Fund and a recent retiree from Wedbush Securities.