We were lucky to catch up with Eric Dobson recently and have shared our conversation below.
Eric, thanks for taking the time to share your stories with us today So let’s jump to your mission – what’s the backstory behind how you developed the mission that drives your brand?
I grew up on a farm in rural East Tennessee. I planned for a career in science. I ended up being awarded a Doctoral degree in Geography and using my computer science skills and my love of this rock we live on to build my first career. That lead me to working for the National Oceanic and Atmospheric Administration in Geographic Information Systems (GIS) and satellite image processing (remote sensing). It was a brilliant time in life, but the life of working in the silos of government was not for me. So, I started a company, having no clue what that entailed, the implications for my life, or even how to pronounce the word “entrepreneur.” My days as a scientist were over.
Raising capital for a startup is a full-time job. I created three companies, one successful, one a disaster, and one that was acquired the Series B investor. So, I got to see success, failure, and the “sideways” exit. Through that process, I was invited to join the team of an angel investment network. I came onboard to learn the process of the investor side of the business. Before I realized it, I had become an angel investor.
The first thing that struck me was the language used on the investor side of the table. When, as an entrepreneur, I heard, “we don’t like your valuation,” I took that at face value. What I learned was that meant, “I don’t believe you have a sufficiently large market and the ability to protect your market segment to justify that valuation.” I had stumbled onto a key language barrier that still separates great investors and great entrepreneurs today.
The second thing that struck me was the shear inefficiency of the activity. It is a primarily volunteer driven industry. It is a passion project. It is a luxury item, not a business or retirement plan. I believe that if you created a committee of one hundred top economic theorists (that understand private equity and entrepreneurship), they could not devise a less efficient system for getting capital into the hands of deserving entrepreneurs. My mission became obvious – to fundamentally change the method and process of angel investing.
So, I made changes in my organization to move from a transaction to a relationship-based process for investing in startups. I created structures that drive angel and entrepreneur interaction. I created educational programs for both entrepreneurs and investors to bridge the language barrier separating them. We created a very efficient system for getting money in the hands of deserving entrepreneurs and a scalable system for follow-on rounds of capital, so our portfolio companies focus on selling products and service, not shares of their companies.
Today, we have an education program that serves entrepreneurs to get them “investor ready.” We have an angel group that routinely invests 2 – 5 times over the life of a company and is happy to lead rounds of capital. We have active entrepreneur support structures that ensure they are not making decisions in a vacuum. We move our pipeline of deals on a 30-day cadence to ensure we move quickly. We have an active co-investment network around us to fill the capital rounds alongside us. And, we have created a traditional venture fund to allow us to scale with our portfolio companies. This gives us more “staying power” and the ability to continue supporting the success of the people changing the world. We are working to scale our infrastructure from a regional angel network to a national one. We believe this model of deliberately creating entrepreneurs, supporting them, and celebrating their success is the model of the future. We think differently about investing in great startup companies. This is our mission.
Great, appreciate you sharing that with us. Before we ask you to share more of your insights, can you take a moment to introduce yourself and how you got to where you are today to our readers.
Community Equity Partners (CEP) is a syndicate of angel groups and funds between Knoxville and Nashville with plans to expand to tree additional markets in 2024. The Network brings angel investors and entrepreneurs together in an environment that celebrates innovation, rewards strategic risk-taking, and promotes performance. CEP is the combination of two angel networks across the Midwest and Southeast and enjoys a 16-year history and has invested approximately $13M in 56 companies across a variety of market sectors. The portfolio has created hundreds of jobs and over a hundred million dollars in follow-on capital investments by other groups and funds. CEP has an established track record investing in technology companies in the US “Heartland” enjoying six exits from 2 – 6x in the last four years. To learn more about CEP visit https://www.communityequitypartners.co.
Has your business ever had a near-death moment? Would you mind sharing the story?
I joined an angel group called Angel Capital Group in 2012 and then took over the network in 2015. Angel investing is a “nice-to-have” item for people with sufficient means. They are generally altruistically leaning because the success rate of startup companies is dismal. Ninety percent of startups fail in 5 years and ninety-five percent fail in 7 years. So, there is a ninety-five percent chance of losing all your money. Yet, these brave souls persevere to find the remaining 5 percent and help them achieve greatness.
I made many changes to the network when I took over. And, by 2019, those changes began to pay dividends. That is not surprising timing as the average hold time for angel investing is 3.4 years. We began to see our portfolio companies grow and return capital. We had no clue how important that would be once we hit 2020.
We merged with another angel network in February of 2020, which, in retrospect, was a terrible time to merge two financial networks. When March came in like an economic lion, we had no choice but to hunker down and weather the storm. No one was interested in angel investing in the middle of a global pandemic. The newly merged business had no operational revenue from March until October and the doors were closing. However, our investors began to call and email asking that we resume operations. Because of the successes we had enjoyed in 2019 and their optimistic and engaged nature, we were able to restart operations at the end of 2020. This taught me two things. First, faith and resilience will take you further than you think. And, working with great people doing great work will always be rewarded.
We are now under the brand of Community Equity Partners and have enjoyed several more successful returns from our portfolio in the intervening years. Relationships are everything to a business. Treat them with the care they deserve, always.
Have you ever had to pivot?
In 2018, we were invited to a grant program for building an investor readiness workshop by TechConnect West Virginia for entrepreneurs and investors. Essentially, we postulated that if investors were told what to look for and entrepreneurs were told what to provide, we could bridge a communications gap separating worthy companies and willing investors. The challenge is that great startup companies in the Heartland of America don’t create great angel investors. The educational hurdle is too great as even very smart, financially savvy people can’t find good information on the process. It is not taught in our colleges and universities. Popular media treats it as a competitive, reality TV activity. And, there are only a handful of books on the subject, all of which are written from the perspective of very wealthy people living in financial centers: New York, Silicon Valley/San Francisco, etc. The reality is the Heartland is different. It does not have any history or density of investors, funds, capital, angel investors, deals, entrepreneurs, etc.….you can probably see the problem. In the Heartland, transactions must be deliberate and calculated with a clear growth plan.
In 2021, we expanded the “Investor Readiness” work with Oak Ridge National Laboratory’s Innovation Crossroads program. We found in both cases, we were able to work with technically oriented founders doing great work, but with little to no experience with venture style capital. So, new content was created to go beyond describing the problem and the solution to a more tactical approach. We went from workshop to a full Learning Management System with lessons, templates, etc. Many of these companies were subsequently pulled into our angel group, which had also been restructured over the past years to ensure that we could grow with our entrepreneurs needs to support them longer and with greater efficiency to drive success.
By 2023, we deployed a venture capital fund on top of our angel group. In retrospect, we did this less out of strategy and more out of intuition than I want to admit. We preach strategy and planning to our portfolio CEO’s until they are tired of it! I’m actually embarrassed to admit how long it took us to understand what we were doing correctly. We had enjoyed 7 profitable exits in the prior five years. Through that, we had pivoted without even knowing it. It seemed intuitive at the time. What we had accomplished was a vertical integration of our training, risk reduction (angel process), and scaling (venture investing) applications. Now, we have 12 more companies that we have been working with for 6 months to 6 years upon which we have high confidence they will exit over the next 48 months…all because of a pivot we did not even know we were making. We are expanding both our angel network and venture capitalization. We are ready to scale.
Contact Info:
- Website: https://www.communityequitypartners.co
- Facebook: https://www.facebook.com/cmtyequitypartners
- Linkedin: https://www.linkedin.com/company/831505
- Twitter: https://x.com/SheltoweeAN
Image Credits
Eric Dobson