Hawaii Angels Celebrates 22 Years of Fueling Hawaii's Startup Ecosystem
The nonprofit group continues to collaborate and strengthen the full pathway for local founders, from idea to successful growth stage company.
The journey from an entrepreneurial idea to startup success is a tough and winding one, with more than a few leaps of faith along the way. One of the chasms to cross is between the family, friends, and fools that helped you start something and the first formal fundraising round—the Series A. The bridge across? Angel investors.
"It's the first place that you're going to get an investment that is from somebody that doesn't have a reason to love you," quipped Chenoa Farnsworth, managing partner of Blue Startups and local innovation ecosystem catalyst. "That's a really important step in the process—it's really important validation."
Fortunately, there is a hui of risk-tolerant yet discriminating angel investors in Hawaii called Hawaii Angels. As of yesterday’s meeting, the group has been hearing pitches from early-stage startup founders and investing in them for 22 years.
The milestone brings a major transition for Hawaii Angels: Farnsworth, who attended the very first meeting in 2002 and has served as its managing director for fifteen years—has passed the torch to Joey Katzen, an entrepreneur, angel investor, and attorney based in Honolulu.
For a group that’s been funneling capital to promising startups for two decades, the transition represents the culmination of a succession plan years in the making.
The early days
Hawaii Angels was formed in February 2002 under the name UH Angels, as its founder, Robert Robinson, had relocated to Honolulu from Boston to teach entrepreneurship and business negotiation at the Shidler College of Business at UH Manoa.
“He had just moved here,” Farnsworth recalls. “He was a Harvard professor and had just published a book, the first book on Angel investing in the country called ‘Angel Investing.’”
Robinson was inspired to start an angel investing group in Hawaii and hosted the first meetings at the UH campus.
Farnsworth attended the first Hawaii Angels meeting in 2002, having already been an engaged member of Hawaii's small but burgeoning startup community. She had recently received her MBA, won the University of Hawaii's inaugural business plan competition, and was running a consulting firm to help entrepreneurs craft business plans and raise capital.
“The first gathering was 20 people or so, and then there were seven of us who actually said, ‘Yeah, I'll sign up,’ and he was asking for help,” she said. “"I thought this would help my clients so I got involved.”
Farnsworth joined Robinson on that original seven-member board that steered the nascent organization in its early days. In 2005, they launched an affiliated investment fund called the Hawaii Angels Heaven Fund which pooled capital from angels to invest in tandem with the state’s seed capital tax credit program.
Too long to read? Watch my interview with Chenoa instead! Supporters of Hawaii Bulletin got an early look last month. Yeah, it takes me a while to write an article.
This was back in the days of Act 221, designed to grow Hawaii’s high-technology business investment and research activities. (It did not end well.)
“If you remember those 221 days, you could take credits in exchange for more equity, so Heaven Fund would take more equity and Kolohala Ventures would take more credits, and that way, we had these two pools of investors,” Chenoa recalled. “You could go through it, into either one of the funds, and so we did that for many years until the law sunsetted.”
By 2009, Farnsworth had assumed many of the administrative duties for Hawaii Angels. And Robinson decided it was time to establish Hawaii Angels as a nonprofit organization.
"It was very informal up until then,” Farnsworth noted. “Rob said, you know, I think it's time to not have this organization be under my social security number at my bank.”
So Hawaii Angels filed paperwork to be a 501(c)6 nonprofit, which is the structure for business leagues like Chambers of Commerce.
While Robinson still leads the group today as president and often serves as meeting emcee (complete with opening monologue), managing Hawaii Angels became Farnsworth’s volunteer job.
Kind of blue
While the end of Act 221 could have led to the end of the group, they began brainstorming.
“The deal flow was really slow and Rob and I were like, ‘What are we gonna do? Should we think about doing something else?‘“ Farnsworth said. “We thought if we started an accelerator, that would provide us with some quality deal flow that we were really lacking—there were good companies coming forward at that time.”
Timing, as they say, is everything.
“The state issued this RFP for accelerators in 2012,” she recalls. “We organized a little exploratory committee to think about how we would respond to this RFP, but meanwhile, Maya [Rogers], and Henk [Rogers] and Rechung [Fujihira] were also organizing to respond to the RFP.”
“Henk’s motivation was empty space in his office that could be used by entrepreneurs… and we need more IP-based businesses in Hawaii like Tetris,” Farnsworth said. “So Maya and Rechung were putting their heads together, doing the research, figuring out structure, all of that, and Rechung is the one who suggested to Maya to hire me to run it.”
Henk and Maya Rogers were committed to running Tetris, and Rechung was running BoxJelly, so none of them had the bandwidth, she said.
“So they came to me and I said, ‘Well, I'm already starting these conversations with Hawaii Angels,‘ and so that's why we decided that I'll run both organizations, and then they'll be synergistic and support each other,” Farnsworth said. “The structure we came up with is that technically Hawaii Angels is a sponsor of Blue Startups.”
Blue Startups just graduated its 15th cohort of companies following their demo day in San Francisco. And its East Meets West conference, taking place next month, is in its tenth year.
“We thought, this is going to work really well,” she recalled. “Angels and Blue will work well together because it's a kind of continuum—you go through Blue, you graduate, then you go pitch the Angels.”
While the Hawaii Angels website says the group has invested more than $50 million in over 100 companies, Farnsworth said that number is probably from 2010. At its peak, the group was investing $5 million to $7 million a year.
“These are individuals, making their own investment decisions and writing their own checks,” she explained, and since the Hawaii Angels fund sunsetting, there isn’t very much hard data on investments and performance. Still, Farnsworth said the group has weathered the end of Act 221, the 2008 global financial crisis, and COVID, and is still fulfilling its mission.
“People keep coming back,” she said. “We're a group that continues to invest in a pretty steady state—anywhere from eight to ten deals a year, investing $1 million to $2 million.”
Passing the torch
Farnsworth has kept busy for the last 15 years and remains instrumental in organizing and growing Hawaii's innovation ecosystem. While she’s proud of her time running Hawaii Angels, keeping it alive during the pandemic was not easy, and she says the group has always known that it had to bring in fresh faces.
“We had maybe ten, twenty paying members during COVID—everybody dropped out, nobody was interested in Zoom meetings, so [we] put the whole thing on hold for at least a year, and it's been a big effort to build it back and to recruit members,” Farnsworth said.
And the demographics of the group are starting to shift.
“Our kind of mainstay members were aging out, to be honest—new people would come and look around the room and go, ‘Well, there's a bunch of old people, I don't want to be here,’” she said. “It was really important to shift that and have some younger people join us and have a little bit more of a youthful kind of presence in the room.
“Now when young people come, they see other young people, and they're like, ‘Okay, I can I can be a member of this group, I'm not going to be the only guy under 40.”
More than half of the Hawaii Angels membership today are new, Farnsworth said. And among the next generation was Katzen.
“Joey's a really important part of that because he is a lot younger than Rob and I, and he's been the face of that youth movement at the Angels now for for a number of years,” Farnsworth explained. “It's important in terms of passing the torch to the next generation, and we've been looking for them for a long time.”
In fact, Robinson and Farnsworth have been trying to recruit Katzen for a while.
“I don't know why he decided to say yes now, but I'm so happy that he has,” Farnsworth said. “Maybe it's because there is more momentum right now, it feels like a good time... the organization is on a big upswing, and things are feeling good and there's a lot of activity.”
Katzen admits he took some convincing.
"For a number of years, Rob and Chenoa have been trying to hint at me that they would like me to take a larger role,” Katzen said.
Katzen first connected with Hawaii Angels in 2017 shortly after moving to Honolulu.
"I felt like it was like time to start putting down roots and actually get involved in the community and not live sort of an expat life," he said. After meeting Farnsworth and Henk Rogers, Katzen joined Hawaii Angels as an angel investor and became increasingly involved.
Katzen joined the screening committee to evaluate prospective deals before they reached the membership. He later joined the Board of Directors. Meanwhile, in 2018, Katzen passed the Hawaii bar exam, which enabled him to provide legal services to local startups. He also became a lead mentor for Blue Startups, where he advises participating companies.
Katzen says that first-hand experience highlighted Hawaii Angels' vital role, and he agreed with Farnsworth’s characterization of a founder’s first investor pitches.
"Can you get money from someone who doesn't already love you, who isn't your auntie?” he asked. “Can you get money from someone where someone isn't paying them to love you?"
That tough, impartial feedback helps prepare local startups for interactions with future venture capital investors, Katzen said, while providing a bridge to critical seed funding.
"It's a stepping stone and hopefully we can keep them here," he said of local startups. "They can go get some big money in San Francisco, but it'd be nice for some of them to be able to stay here, and that would not have been possible 15 years ago."
As for taking the reigns of Hawaii Angels, Katzen said, "I think it was just time—getting good deal flow and getting continued investors and repeat investors is very valuable for us."
The next chapter
Katzen said his top priorities include providing educational resources for new angel investors and members.
“We found that some things we take for granted because we've had a smaller investment group that's written a bunch of checks before,” he admitted, saying he wants to resurrect new member orientation lunches to cover startup investing basics, for example, industry jargon like TAM (total addressable market) and financial instruments like SAFEs.
“Whenever I'm coaching entrepreneurs. I'm like, ‘Fuck the acronyms, stop that shit—you need to talk about this stuff to a generalized audience and stop using words like that,” he said.
“It's also educating people on the tax code and educating people on the terms and educating people on the risk profiles,” he continued. “You invest in 10 and you hope one goes 20, 30, 40x, and a couple of them maybe you get your money back or a little more, and the rest crash and burn to zero.”
Katzen also wants to focus on membership growth, not just quantity.
"I would be comfortable with the membership getting up to 70 or 80—I think over that we'd have to really rethink how we do things," he said. "I'm more interested in getting good deals than more members.”
Katzen believes adding more members with experience spanning the startup investing continuum will provide additional value. He highlights the recent influx of venture capital investors into the group's ranks.
"The biggest change I've seen is now getting all these VCs… I love having this VC involvement,” he said. “We help them because we get them deal flow, and they help us with due diligence, membership, and everything else—it's great.”
Katzen says with the new type of member, the pathway for startups is clearer and stronger.
“I see ThriveHI, and then Blue Startups, and then Hawaii Angels, and if we have VCs involved that have a presence on island, then you get to the next step," he said.
As for what’s next for Farnsworth—who will continue to lead Blue Startups—she has joined the board of the Sundial Foundation, another volunteer position but with a national organization.
“I've been fascinated with impact investing now for a long time, and these guys have a venture philanthropy fund, which I just think is such an interesting concept and structure,” she explained. “it is a nonprofit but it is a fund and it makes investments, and those returns will come back to the nonprofit to make more investments.
“I just love that model, making an impact using the exponential growth factor of market forces as opposed to the traditional charity type of model,” she added. “They're a small seed investor, usually investing 25k to 75k, but the idea being that we can take risks that other investors can't—see the change we want to see in the world through those deals.”
Between Hawaii Angels and Blue Startups and the Sundial Foundation—which has already partnered with Blue Startups on one of its cohort companies—the interconnectedness of the Hawaii innovation ecosystem and the rest of the world is only getting stronger.
“It's really exciting to get a national perspective on things and get access to national deal flow that is interesting and making a big difference,” she said.
Right now, though, her focus is on the East Meets West event, taking place March 14 (Summit) and March 15 (conference). Learn more at EastMeetsWest.co, and get 25% off your registration with the promo code EMWpromo.