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Seed Capital From Angel Investors: Peter Birkeland, RAIN Fund Program Manager, RAIN Source Capital (Part 1)

Posted on Thursday, Jul 1st 2010

By guest authors Irina Patterson and Candice Arnold

This is the tenth interview in our series on financing for entrepreneurs. I am talking to Peter Birkeland, RAIN Fund Program Manager at RAIN Source Capital, a multistate network of RAIN® funds.

The network currently has more than $33 million invested in 55 companies. Its head office is in St. Paul, Minnesota.

Irina: Hi Pete, Could you tell us a little about your own background?

Pete: I started off in public accounting and then wound up doing some incubation in a company and decided I wanted to work with startup businesses. From there I went to do some tech transfer work, and then years ago I joined RAIN Source to help on the financial side. Now I manage our RAIN Fund program.

Irina: Tell us about RAIN Source Capital.

Pete: RAIN Source Capital is network of angel funds, 23 of them, that operate mainly in the upper Northwest – Minnesota, North Dakota, South Dakota, Iowa, Montana, and Idaho. These 23 funds are made of 450 accredited investors, and we’ve been operating as an entity for about 12 years and focused on specifically angel investing for the past seven.

Irina: What is your organizational structure?

Pete: Organizationally, we are something like a back office in a network hub. RAIN Source provides back office support. We help with deal flow. We help with getting due diligence facilitated as well as post-investment monitoring for all our funds.

What the funds are, they are individual LLCs that are set up in a formal structure where our members make capital commitments and then invest in companies through a membership and through a vote of all the members in that fund.

We’re different from a network, such as a band of angels where there is a network through which they come together and meet and then individually decide. In our structure, the entrepreneur presents his or her business to the fund and our members vote.

For the most part it’s majority rule. If the members vote in favor, the fund makes the commitment, and then the individual members are able to invest their own dollars on a side-by-side basis on the same terms and conditions.

Irina: Is there a minimum requirement for how much each investor contributes to the fund?

Pete: We do have some minimums that we’d like to put in, usually around $50,000. They don’t put maximums in, but what happens is if you contribute above a certain threshold, you don’t get any more voting power. So, the structure of the investment is such that no one individual could contribute enough to control the fund.

There are  about 450 investors in the RAIN fund today. And we’re looking to grow. We’re looking to expand our profile and our network around the country.

Irina: Are you looking for investors in specific regions?

Pete: We’ve spent the past seven years working on our network and developing our model. We are now talking with people in all areas of the country, in the Northeast, theIntermountain West [between the Rocky Mountains and the Cascades/Sierra Nevada], and obviously in the states that I told you.

People know us through Steve Mercil, our CEO, or they know of RAIN Source through our leadership and positions in the Angel Capital Association and the National Association of Seeded Venture Funds.

They’ve heard of us, and people are coming to us and to say, “You know, we’ve heard about your model and we want to learn more about it.” And some of them are hearing enough to say, “We’d like to form RAIN Funds or we’d like to figure out a way to work with you.”

This segment is part 1 in the series : Seed Capital From Angel Investors: Peter Birkeland, RAIN Fund Program Manager, RAIN Source Capital
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