Solving an Ecosystem Problem
Updated: Dec 6, 2021
As a reminder the Academy Investor Network (AIN) is an investment syndicate of service academy graduates (SAGs) from the five 100% publicly financed U.S. Military Institutions. AIN’s mission is to expose SAGs to the venture asset class, while ensuring startups that fit within our thesis receive funding, guidance and mentorship. AIN invests in i) veteran-led startups and ii) civilian-led startups in the Government Technology (GovTech) sector. AIN believes veterans and companies building products in the GovTech sector face a unique set of challenges. AIN is taking an ecosystem-building approach in order to solve these challenges.
The Problem for Veteran Entrepreneurs: A large number of veterans are interested in entrepreneurship, but the number of veterans pursuing this path is declining. Studies by the Small Business Administration (SBA) indicate that up to 25% of military members exiting service are interested in starting a business. However, in the last 20 years the amount of veterans pursuing this path has actually decreased ~33% according to U.S. Census data. AIN believes this data holds true and is even worse for veterans seeking venture capital funding and the decline is due to several factors including: i) a lack of social capital within the venture ecosystem, ii) a lack of mentors for veterans within the ecosystem and iii) VC capital in the U.S. is geographically concentrated and veterans are often not located near these VC-rich areas.
Lack of Social Capital and Mentors: The military is more than a career it is a lifestyle and a busy one at that, establishing and maintaining contacts with those outside the military can be very difficult. The result is that military members have little chance to establish relationships with either entrepreneurs or institutional VC’s prior to exiting military service. Additionally, very few of these veterans attend the elite academic institutions that VCs typically attend. All of this amounts to veterans being unknown entities to VCs, and not fitting the pattern that VCs are used to seeing from successful startups.This lack of familiarity also makes it difficult for veterans to source the right mentors. Having the right mentors is essential not only when trying to build a company but also when shaping a company as it prepares to raise capital at different stages, such as Seed, Series A - C and IPO or M&A exit. Lack of social capital and the right mentors significantly increases the difficulty of attracting investment.
Location, Location, Location: The Bay Area, New York and Boston accounted for almost 70% of all VC capital invested in 2019. When veterans exit the military they are often not located in these areas, which naturally increases their difficulty in raising capital. There are currently very few virtual programs that focus on connecting veterans to capital in these VC-rich areas.
The Problem for Civilian Entrepreneurs in GovTech: Having governments as customers means long sales cycles, strict government requirements (especially contracting rules), and the threat of losing a contract when administrations turn over for reasons that have nothing to do with quality of product. These issues have traditionally made it difficult for those in the GovTech space to raise capital.
The Problem for SAGs Wanting to Invest in Venture: AIN conducted surveys of SAGs to assess willingness to invest in the venture asset class. There was overwhelming willingness to invest in the asset class, but what halted people was the combination of a lack of knowledge, trust and transparency in the space. Based on our surveys we believe there is pent up demand amongst SAGs to invest in the venture asset class.
We at AIN believe that there are numerous problems with the veteran venture ecosystem. Based on lessons learned from other affinity groups like All Raise and BLCK VC, we believe that the best way to improve veterans attracting capital is to promote members from those groups into capital allocation positions.
The Solution: AIN is creating a network that can provide capital, expertise and mentorship to entrepreneurs.
Service Academy Graduates: Our network is rooted in the unique skill sets our group members gathered through the 4-year crucible of the academies and while serving as junior officers in their respective services. These skill sets include the following:
Real-world leadership experience in dynamic environments
Education that has a heavy S.T.E.M. concentration
Experience operating some of the technical equipment humans possess such as submarines, fighter planes, attack helicopters, nuclear weapons, and serving as astronauts
When making investment decisions, AIN believes both the quality of the founders and the product they build are important, but in early stage startups we optimize our decision based on the quality of the founder. AIN management will bring investment opportunities to the platform that both harnesses and leverages the unique set of skills SAGs possess.
Ecosystem: In order to successfully build AIN, it is essential that we are hyper-focused on both adding to and further building out the veteran venture ecosystem. We seek to be complementary to the veteran venture ecosystem in several ways.
Capital Source: We represent another source of capital for veterans in an environment where we assess funding for our peers is not sufficient.
Adding Investors: It is core to AINs mission to add veterans to the pool of investors in the venture asset class. Similar to affinity organizations like All Raise (for the female ecosystem) and BLCK VC (for the African-American ecosystem) we believe that the best way to ensure startups from minority groups (women, African-Americans and veterans) receive money is to promote people from these groups into investment decision-maker positions. In order to expand the pool of SAG investors, AIN will onboard both accredited and non-accredited investors. We understand this asset class is risky so we are also providing a VC educational course to our members for free. Completion of this course is required for non-accredited investors but not for accredited investors.
Alliance Network: We are building an alliance network of both veterans and non-veterans with business and startup experience who can help companies within our network. Based on the experience of our co-founder, Emily McMahan, we know first-hand there is tremendous interest amongst veterans and civilians alike to support the entrepreneurial pursuits of veterans. Therefore, AIN is establishing a formal, invite-only alliance network of mentors to not only help our portfolio companies but also help guide those companies that are not yet ready to receive capital from AIN.
Geographically Diverse: AINs platform is designed to be digital-first. This enables us to source and support companies no matter their geolocation. We believe this is essential for our ecosystem because veterans are often not co-located near areas rich with VC funding; therefore, AIN can serve as a digital bridge to capital and connections.
AINs Extended Network: AIN has a robust and proprietary network that extends to a wide range of individuals and organizations that are on the bleeding edge of frontier and government technology. Additionally, AIN is well connected to other funds within the veteran venture ecosystem. AIN’s proprietary relationships range from Military R&D and Intelligence Community Agencies to National & Private Research Labs, and these relationships are largely inaccessible to the average investor. AIN will leverage these relationships and combine them with our experience of investing in 80+ early stage investments, in order to bring top-tier entrepreneurs capital and connections that can help them grow their business.
Transparency and Accountability: AIN is built by Academy alum for Academy alum, which means we understand the unique set of values that have been ingrained in our members through 4-years at their respective academies as well as during their time leading men and women as officers. Our members took oaths to support and defend the U.S. constitution, this is a special group and our members have previously held or currently hold special positions in the government. This means AIN has to pay special attention to values and how we treat both our syndicate members as well as startups. Our values are posted on our website https://academyinvestor.com/. We believe our chosen set of values and the fact that we have lived these values along with our syndicate members gives us a competitive advantage when getting allocations into deals.
Market Size: We will examine this from two perspectives, i) the size of the veteran venture ecosystem and ii) the number of potential AIN members.
Size of Veteran Venture Ecosystem: Veterans make up ~8% of the U.S. population and 9% of all business owners. The total revenue of veteran owned businesses is ~$1 Trillion. There are approximately over 1,000 veteran founded companies. We believe there is room in this market for more capital allocators, and considering the aforementioned decline in veteran entrepreneurship we believe AIN can also help increase the amount of veterans that attempt to start a business.
Number of Potential AIN Members: Sourcing from the 5 U.S. Service Academies means that AIN has a large pool of potential syndicate members. We fully realize that of this pool only a small amount will participate on our platform, but we do think that the combination of the unique relationship our members have with the companies featured on our platform and our efforts to democratize who can invest by taking on both non-accredited and accredited investors, will enable us to capture a large enough pool of members to make our syndicate viable.
Conclusion: AIN is committed to not only becoming a key player within the veteran venture ecosystem, but also to working with other players to further build out the ecosystem. Whether you are a SAG interested in investing in venture, a veteran seeking capital for a technology-based startup or a civilian building a company in the GovTech space please contact us, we want to work with you.