NM Angels fund gourmet pet food, ponder magazine
BYLINE: Kevin Robinson-Avila
Exotic birds could soon have the New Mexico Angels to thank for their gourmet dinners.
The Angels are providing $275,000 to help Albuquerque-based Gourmet Pet Supply Inc. launch a new line of pet food that includes organic feed and rainforest-fresh dinners for tropical birds.
The investment marks the angels' first deal for 2007 -- and the first one made since the New Mexico government approved a new tax credit for angel investors.
The credit -- approved by the state Legislature and signed into law by Gov. Bill Richardson in late March -- allows private investors to receive a $25,000 state income tax credit for each $100,000 investment they make, up to a maximum of three investments, or $75,000 in credits per year.
NM Angels President Jerry Mattingly says the group will structure the new funding for Gourmet into three separate investments to allow participating angels to take maximum advantage of the credit.
"It would be silly to put it all in as just one investment," Mattingly says. "By structuring it as three different LLCs [limited liability companies], the angels can take more advantage of the tax credit."
Charles Wollmann, spokesman for the State Investment Council, says he's happy to see the angels tapping into the tax credit.
"The credit was set up to promote more investments in New Mexico," Wollmann says. "If angels make enough investments to reach the maximum credit allowed under the program, we'll see that as success."
A second investment is also near completion. About 15 angels are banding together to provide $200,000 to a new publishing start-up company that produces the bi-monthly magazine Land Rover Lifestyles. Land Rover founder Douglas Evilsizor requested the funding in February at the angels' first investor breakfast -- a new bi-monthly forum launched this year by the group to review funding requests from non-technology companies.
"We're in the final throes of due diligence on that deal," says John Chavez, an NMA board member who facilitates the breakfast presentations. "We need to create the final deal structure before we can say how many angels will participate and exactly how much the company will get."
The Land Rover investment will not be eligible for the angel tax credit since that only applies to funding for high-tech companies, Chavez says.
Mattingly says the Gourmet and Land Rover deals foreshadow a much more active year for the angels. Until now, the group had scheduled funding presentations with only eight companies per year, or two at each of the NMA's quarterly dinner meetings. But now, two non-tech companies are also presenting at each bi-monthly breakfast, allowing 12 more companies to be heard annually.
"We're screening about seven companies per month now, and inviting 20 different start-ups to present to the group at our dinners and breakfasts," Mattingly says. "We expect to fund five or six different companies this year."
The increase in local angel activity coincides with a substantial jump in angel investments nationwide, according to the University of New Hampshire's Center for Venture Research. The center says angel investment jumped 11 percent nationally between 2005 and 2006, from $23.1 billion to $25.6 billion.
The number of active angel investors also increased nationwide, from 227,000 to 234,000.
For its part, the NMA now has 57 active members, making it one of the larger angel groups in the nation. Fewer than a third of the 265 angel groups currently operating in the U.S. have more than 50 active members, according to a new survey by the Washington, D.C.-based Angel Capital Association.
Meanwhile, Gourmet Pet Supply CEO David Roddy says the new angel investment in his company will help sustain the high growth levels his firm has enjoyed since 2004, when Gourmet received $400,000 in venture funds from Santa Fe-based Mesa Capital Partners.
Mesa provided another $50,000 last year, and it has approved $200,000 more as a co-investment with the angels. That brings the latest round of funding to $475,000, and total private equity received by Gourmet to $925,000.
Roddy declined to disclose revenues but says sales grew 58 percent in 2005 and 135 percent in 2006. Roddy predicts another 100 percent increase this year.
Sales have expanded to six foreign countries, including Canada, the United Kingdom, Taiwan, the United Arab Emirates, and two Caribbean nations. Roddy says Gourmet just inked a new contract with Netherlands-based Witte Molen -- a $100 million company that ranks as the largest pet food distributor in Europe and one of the largest seed-food manufacturers in the world.
Witte Molen will begin selling Gourmet products throughout the European Union in late 2007.
The new angel and Mesa investments will allow Gourmet to launch its new product line, increase product output, build inventory, and translate labels to foreign languages.
"Without private equity, we would never have experienced the growth we've had in the last couple of years," Roddy says. "The new funding will allow us to sustain that growth."