A growing institutionalization of angel investing is giving the City & County of San Francisco Employees' Retirement System the opportunity to invest in funds providing seed money for entrepreneurs trying to create the next Facebook.
The $15.1 billion San Francisco system's $20 million commitment might make it the first pension plan to invest in a fund of funds focusing solely on angel investing.
“It has been uncommon for public plans to access the micro (angel fund) market due to the size of the funds focusing on it and the relative newness of institutional funds,” said Brian P. Murphy, a managing director of Portfolio Advisors LLC, Darien, Conn., a consultant to the San Francisco fund. “Developing a portfolio of micro VC funds in this manner is a unique solution for a pension plan.”
It's also an investment that wouldn't have been possible only a few years ago. Most angel funds are no more than 5 years old, and their pace of growth has accelerated in the past 18 months, according to fund-of-funds managers.
Angel investing used to be the exclusive domain of wealthy individuals looking to deploy some capital for the initial round of funding — also known as seed stage — for startup companies. The funds are usually small, a maximum of $75 million in assets, and are set up along the lines of traditional venture capital funds. Initial investments made in the startup companies are generally less than $2 million.
In investing with Weathergage Capital, a fund-of-funds manager that invests in angel and other venture capital funds, the San Francisco retirement system is following the lead of some foundations and endowments. Those institutions began investing in an organized way in angel funds five years ago when The Investment Fund for Foundations set up a fund of funds aimed at the venture capital subset.
Several dozen foundations and endowments are now invested in the $75 million fund of funds, said Chris Douvos, TIFF's managing director, who is based in Palo Alto, Calif.
In addition, some major university endowments, including Stanford and Yale, have made direct investments in angel investment funds instead of going through a fund of funds, say those familiar with the endowments.
For San Francisco, the retirement system's board approved the investment in the angel fund of funds at its Jan. 11 meeting, committing up to $20 million.
That investment is a separate account for the San Francisco system. It will be an offshoot of another $20 million commitment, also approved on Jan. 11, in a separate Weathergage fund of funds that invests in a wide spectrum of venture capital funds, including some angel funds.
Judith Elsea, co-founder and managing director of Palo Alto-based Weathergage, said she could not comment on the funds because of Securities and Exchange Commission rules.