The funds would steer money from affluent investors to early stage companies.
St. Paul-based Rain Source Capital said it plans to create 121 angel investment funds around the country over five years to provide money for early stage companies.
Rain Source, which develops networks of angel investors, said each fund would be worth at least $1 million. The firm would recruit groups of angel investors -- individuals who earn more than $200,000 a year or have a net worth of at least $1 million -- to establish such funds across the nation.
In return, Rain Source would provide legal templates, management expertise, investment tools and financing experience to the group.
David L. Welliver, president of St. Paul-based financial consulting firm WellAdvised, said he is leading the effort to raise two of those funds in the Twin Cities area in a year's time.
"We're seeing a long-term trend, where venture capital [firms] are funding later stage growth. So, there's a gap between very early seed stage investing and when VCs will even consider an early stage company," Welliver said. "This is one way of helping fill that gap."
Steven Mercil, Rain Source Capital's CEO, said Minnesota's recently passed angel investment tax credit could also be an incentive to investors joining the network.
"It's a terrific opportunity," Mercil said. "In past recessions, the greatest growth companies have come out."
Raising the money might be a challenge. There was $17.6 billion in angel investment in the United States last year, an 8.3 percent drop from 2008, according to the Center for Venture Research at the University of New Hampshire.
In addition, the average amount of money spent by networks of angel investors also declined from $1.8 million in 2008 to $1.4 million last year, according to Kansas-based Angel Capital Association.
But there is a bright spot -- the number of investors joining angel networks has grown. About 39 percent of angel groups saw an increase in membership, according to an Angel Capital Association and Silicon Valley Bank survey.
Currently, Rain Source has 23 funds in six states, including Minnesota.
"The idea they are going out to raise more [money] is great for the state," said Dan Carr, CEO of the Collaborative, a group that links entrepreneurs with investors.
Wendy Lee • 612-673-1712