Lagniappe is a committed capital, Member managed angel fund that pools Members' capital and expertise to invest in early stage high growth potential start-ups. It is a collaborative, social platform that balances investment discipline with decisiveness in a culture of continuous learning.
Local investing is great way for investors to put their skills and expertise to work, along with capital to mentor local entrepreneurs, help build scalable, interesting businesses and ultimately improve portfolio returns. It offers exposure to a great network of people and a variety of industries and potentially innovative niche technologies. Like Venture Capital, Angel investing, if done right, can have great returns.
Lagniappe provides Members a platform to invest, become better investors, and build a true angel portfolio for roughly the cost of a single investment. Lagniappe reduces barriers to entry for new investors and a scalable model for those who wish to increase their exposure to the angel investment asset class.
"As an angel, you have to pick startups before they've got a hit—either because they've made something great but users don't realize it yet, like Google early on, or because they're still an iteration or two away from the big hit, like Paypal when they were making software for transferring money between PDAs."
--Paul Graham, Founder of Y-Combinator
The core activity of an angel investor is to 'pick great start-ups.' In his blog posted titled, "How to Be an Angel Investor," Paul Graham goes on to say, "The problem is not finding startups, exactly, but finding a stream of reasonably high quality ones." Lagniappe provides a curated local 'stream' and pools capital to give our investors a seat at the table for the right deals.
Unlike a more established business that is organized to execute on a known business model, start-ups and early stage companies are often searching for what will become their business model. Once they 'find' it, they must then effectively manage the rapid growth that often come with "product market fit". Unfortunately, many start-ups ultimately fail to find a workable business model or can't manage the ensuing growth. When this happens, either the business fails entirely or investors will get less than their capital invested back. The flip side of this is that when a start-up is successful in proving a new business, it is often very lucrative and can yield out sized returns.
The following graph from the Kauffman Foundation shows the distribution of returns and time held to liquidity from their survey of angel investors that participate in groups.
This graph shows that the typical active angel can expect 50% of investments to return less than 1x or less than capital invested, while over 80% of total investments return less than 5x. These investments also typically mature more quickly, or in about three years. Successful investments on the other hand may take longer to mature, with an average of 6 years, and are a much smaller % of total outcomes, but can be very high returns in excess of 30x capital invested.
Angel Investing is about finding the companies that are going to be the exceptional outlier and staying in for the long haul. A big winner helps recoup losses on failed investments and can drive overall portfolio return.
Given this distribution of potential outcomes, investing in a single company can be a bit like purchasing a lottery ticket, but with discipline and sustained investment across a portfolio of companies, it is possible to realize above average returns. The average return for angel investors in the Kauffman study was 2.6x capital invested.
Lagniappe is designed around this portfolio based approach. By pooling Members' capital Lagniappe increases the odds of identifying a winner by investing in more companies than they would by investing the same amount of capital individually.
Lagniappe Members are generally local high net worth individuals. All start-up investing is high risk. Because of this high risk profile and imperfect information available from start-up companies, the Securities and Exchange Commission (SEC) currently restricts investment in start-ups to "accredited investors." The SEC currently recognizes the following definitions of an accredited investor for an individual:
Certain entities can also be classified as accredited investors. Entities are either composed exclusively of accredited investors or have over $5M in investable assets.
Lagniappe Members are asked to "certify" their accredited investor status as of when they join the group. Certification can be accomplished through either third party certification, such as a letter from the individual's CPA, or by directly providing financial information.
Lagniappe's minimum investment amount is $25,000 or five membership "units." Each unit costs $5,000 and entitles the Member to one membership "vote." Members can invest additional funds (purchase additional units) in $5,000 increments.
Members can opt to either pay in, in full, upon joining or pay in quarterly on a schedule of 10% per quarter. Members joining after the "initial closing" must "catch up" at the time of joining.
The following table can be used to estimate the % of the capital commitment amount to be paid in upon joining based on the date joined. This is an estimates schedule as payments may be deferred by the group. Percent paid at joining as of the date joined (If partial quarter, round down):
Membership applications and commitment amounts must be accepted by the group. The group expects to discontinue considering new membership applications once the portfolio begins to mature.
At the outset, the group felt that it was important to start with the end in mind, and convened a committee to set out clear goal objectives and 'ideal' investment criteria to guide the group in its decision making.
These have served as an effective guide for the group's activities thus far.
Lagniappe is "Member Managed" meaning that Members actively participate in both the investment process and day to day management of the organization. This is typically done through monthly Member meetings, email, and volunteer committees. The group has an elected "Executive Committee" composed of five Members that help set the agenda for the group and facilitate the implementation of Membership actions.
Investment decisions are made by a 2/3 "super-majority" vote of the Members. Votes are taken based on membership "units." One unit is equivalent to $5,000 of invested capital or commitment amount. Votes are typically taken electronically following the meeting in which an agenda item is discussed.
Members who choose not to participate in meetings or electronic voting can select another Member to act as a standing proxy and to cast their vote in their absence. Lagniappe uses both a general and back-up proxy system to ensure quorum at all meetings
Member meetings are held monthly from 6:00 pm to 8:00 pm at Loyola University New Orleans. Member meetings typically have three parts:
Absent a pending investment discussion, the third meeting block can be used for continuing education on investment related topics. Voting generally takes place electronically following the meeting.
Members can also volunteer for leadership positions and participate in committees. The group has a standing Executive Committee in addition to ad-hoc due diligence committees and new Member development.
Investing through Lagniappe also provides great opportunities to mentor entrepreneurs and get involved with local companies. Lagniappe designates a liaison/adviser for each company it invests in and may have the right to designate a Member to join the board in some investments. Advisers serve a critical roll as a sounding board for emerging entrepreneurs and can help dramatically improve the success rate of the overall portfolio by providing mentoring, opening doors and connecting the company with resources.
Lastly, Lagniappe Members can cross-enroll in NO/LA Angel Network where they can participate in additional deal flow, investor education opportunities, and leadership positions.
Members have the opportunity to invest additional personal funds, known as "Add-on" investment in any deal in which the group invests for which there is additional space in the round. Members who commit to represent Lagniappe within the NO/LA Angels Network can also participate individually in any deal the network funds whether or not Lagniappe decides to invest.
Add-On investment is not managed by the group or the administrator and is a direct relationship between the individual Member and the Entrepreneur.
Lagniappe Angels is organized as an LLC that is governed by an operating agreement a copy of which is included in the Private Placement Memo (PPM) that can be downloaded below. Investors purchase membership units and become Members of the LLC. The group is organized in Louisiana and headquartered in New Orleans.
As an LLC, Lagniappe is a pass through entity for tax purposes. Members receive a K-1 at the end of the year for their pro-rata share of profits and losses recognized by the entity. Investments in C-Corporations or Debt Instruments are generally held by Lagniappe at cost until a write down occurs or the company has a liquidity event. Investments in other LLCs may pass through profit or loss from operating activities. Members may receive some initial tax benefit from these pass throughs or write downs(particularly early on), but should consult a tax professional regarding longer term implications of realizing these losses and the impact of investment in Lagniappe on their individual tax situation.
Where appropriate, Lagniappe may apply for and receive angel investor tax credits. If received, these would be passed on pro-rata for the benefit of the individual members.
Lagniappe has engaged the services of an administrator to orchestrate the platform, provide operational support and assist in developing deal flow. A copy of the administration contract is included in the Private Placement Memo (PPM) that can be reviewed below. The administrator is paid via a bonus structure that equates to 10% of the profits realized from investment activities. The administrator is Neutral Ground Ventures, LLC, run by Jon Atkinson.
Lagniappe maintains a partnership with Loyola University New Orleans. The Loyola College of Business is an investor in the group and provides in kind services such as office and meeting space that support group operations.
In exchange the group supports Loyola's educational mission by providing access and experiential learning opportunities to MBA students studying venture capital and angel investing.
Meetings generally take place at Loyola University in the College of Business Ideation Lab
Lagniappe Angels is an entity member of NO/LA Angel Network (NO/LAAN). NO/LA Angel Network is the largest network of angel investors in the state of Louisiana. Lagniappe's membership in NO/LAAN allows Lagniappe both access to syndication partners and exposure to more deals than it would have independently. Lagniappe reviews deals from NO/LAAN in addition to those presented at monthly Lagniappe Meetings. NO/LAAN also provides great investor education opportunities and access to a wider a network of due diligence resources.
Individual Lagniappe Members can 'opt in' to Membership in NO/LAAN through Lagniappe. Members who opt in can participate in additional deal flow and leadership opportunities through the NO/LAAN platform. Lagniappe covers Annual NO/LAAN Membership Dues for Lagniappe Members that commit to attend a minimum of four NO/LAAN meetings per year.
There are no out of pocket costs for Membership over and above capital invested. Lagniappe is designed to be lean, maximizing investable capital, with minimal ongoing operating costs. Direct expenses such as legal and accounting costs and membership dues are deducted from committed capital. Expenses are approved in advance by either the executive committee or the full membership with larger expenses requiring a vote of the membership. Books are maintained by a Member who serves as the group's treasurer.
Lagniappe retains the services of an administrator who's compensation is tied to a 10% bonus structure based on profits from investment activities. A copy of the administrator contract can be found as Exhibit E in the PPM.
No investment results are guaranteed. All terms are offered solely pursuant to that Private Placement Memorandum of Lagniappe Angels, LLC (the “PPM”). This Summary does not constitute an offer to sell securities and is qualified by the PPM.
NOTE TO POTENTIAL INVESTORS: ALL SUMMARY TERMS ARE QUALIFIED BY AND SUBJECT TO THE PPM. MOREOVER, SHOULD THERE BE A CONFLICT BETWEEN THE MEANING GIVEN A TERM IN THIS SUMMARY AND THE MEANING GIVEN SUCH TERM IN THE PPM AND ASSOCIATED DEFINITIVE DOCUMENTS, THE MEANING GIVEN SUCH TERM IN THE PPM AND ASSOCIATED DEFINITIVE DOCUMENTS SHALL CONTROL.