Arizona Tech Investors bullish on future deals with Arizona startups
Bob DeLean is optimistic for the future of Arizona Tech Investors, one of the state’s most prominent angel investment groups.
About 18 months ago, DeLean took over the helm as chairman of ATI and has focused his efforts on growing the group’s membership and inking investment deals with emerging startups.
Since its inception, ATI has invested a total of $24 million in more than 93 companies, including notable Valley startups Qwick, GT Medical Technologies, Botco.ai, Virtuous, YellowBird and AlgoFace, according to the organization’s website.
Last year, ATI invested in 12 companies, representing total capital of more than $1.4 million.
The organization, which has 100 members, typically backs early-stage information technology, medtech and biotech companies in the U.S. and Arizona, where it’s especially looking to ramp up investments and membership in the coming months.
“We seem to consistently have about 100 members, year in and year out, and I want to grow that,” DeLean said. “If we have more members, then our check sizes are larger and we become more relevant. So I think those are a couple key goals.”
In a move to spur potential dealsourcing with Arizona-based companies, ATI in May held a “Saguaro Summit” meeting in which local founders pitched their companies to the organization, which provided the startups with valuable feedback. A similar event is planned in October.
“We had six local companies present, and it was sort of an olive branch to the community that we want to look at local, Arizona-based companies also,” DeLean said.
Stronger due diligence
While economic headwinds have caused venture capital firms and angel investors nationwide to pull back on funding over the past year, ATI has become more discerning when evaluating companies as potential investment targets.
“We’re doing stronger due diligence than we’ve ever done before,” DeLean said. “We’ve got about 100 members, and we all have different domain expertise. So we want to utilize all that domain or subject matter expertise to do a better job of analyzing the companies that we’re potentially going to invest in.”
Pitchbook reported a significant drop in national deal count at the pre-seed and seed stage during Q1, in contrast to trends in previous quarters in which activity was relatively robust.
Investors deployed $2.6 billion in pre-seed and seed capital across 789 deals nationwide in the first quarter, compared to $4.2 billion across 1,328 deals in Q1 2023.
The bar “has gone up” for companies looking to raise capital as investors are more cautious or selective when doing deals, according to Pitchbook’s Q1 Venture Monitor report, which collects data on venture capital and angel investment deal flow.
“The criteria has become more stringent, and investors prefer to either double down on the best-performing portfolio companies or invest in the highest-quality companies that have demonstrated traction and product-market fit,” Pitchbook wrote in its Q1 Venture Monitor report.
DeLean echoes that startups must “bring a strong story” for how they’ll deliver returns to investors.
“Because we all know the last couple of years, raising capital has gotten a lot harder,” DeLean noted. “In 2021, there was all this liquidity sloshing around. Now, it’s much harder to raise money today. So I think investors are much more discerning.”
ATI: ‘A history of success’
ATI considers investment in companies with at least a minimum viable product, credible go-to market strategy and is preferably generating revenue.
“We’d like to see some technology and businesses that we think can scale,” DeLean said. “We want to see businesses that are solving a real problem and have a big market.”
Companies seeking capital from ATI go through an application process in which they submit five-year financial projections, a presentation deck, and capitalization table. After a review by ATI’s screening committee and a 10-minute presentation, the most promising companies are invited to pitch to the group’s membership at an upcoming meeting.
“We put these founders through a lot of hurdles, but we’re investing our money, and so we want to be really careful what we invest in,” DeLean said. “We really want to see founders that have a history of success, but we want to know they don’t give up easy and that they’re committed to their idea.”
ATI’s check sizes vary with the group’s past couple of investments each totaling around $200,000. For members, the average investment is around $10,000. The group typically forms an LLC with its combined individual investments, so it appears as one name on a company’s capitalization table.
“This is a key thing. As companies grow, you don’t want 120 names on your cap table,” DeLean said. “That makes it much harder later to raise money with the VCs, having to go get all those signatures for approval.”
DeLean has been an investor with ATI for more than a decade, making nearly three dozen angel investments in early stage and startup companies — primarily in Arizona.
He said the Valley’s tech ecosystem is “stronger than ever,” with many events connecting local investors and startups, such as Invest Southwest’s Venture Madness.
“I think from a startup’s perspective, if you’ve got a really good business plan with reasonable terms for investors, I think you’re likely to get the capital you need,” DeLean said.