Wombat Exit Marks BlueTree's Biggest Return to Date

Monday, June 11

Being an early investor paid off big time for BlueTree Allied Angels.

More specifically, the Wexford-based angel network notched a 12 times return on the $266,500 it invested during a three-year period in Wombat Security Technologies.

“I've been doing this for 15 years, and this is the one you wait for,” said Catherine Mott, BlueTree president and CEO.

In February, Wombat, a security awareness and training software firm, was acquired for $225 million by Proofpoint, a Silicon Valley cybersecurity company.

“We just received the first installment at $2.75 million,” Mott said. This accounts for 90 percent of BlueTree’s payout; typical of such transactions, 10 percent was held back, Mott said. It is the biggest return that BlueTree has realized in its 15-year history.

“The company was very capital-efficient,” Mott said. “They only raised about $10.8 million, so early investors had a nice return on it.”

Incidentally, Wombat CEO Joe Ferrara was once a member of BlueTree. Mott said BlueTree has had 10 positive exits in the realm of 3x and 7x returns.

“But the deal flow we’ve seen in the past five or so years is better and stronger than any time in the history of our firm,” she said. “When we started, the region had Innovation Works and the Pittsburgh Life Sciences Greenhouse, now we have something like 30 incubators/co-working spaces, the universities are actively involved and they’re preparing companies better. So it’s such a healthy investing environment for us.”

BlueTree was the region’s first formal angel network, meaning that accredited investors with net worth of at least $1 million meet regularly to be pitched by young companies and invest jointly in ones they find promising. It started with eight members and now has 78 and — thanks to greater visibility, a track record and referrals from the growing number of angel networks across the country — is approached by about 600 startups annually.

“If you were uber-wealthy, you had access to deals, everyone knew your name and came to you,” Mott said. “Networks aggregate the money to invest in startups and create healthy portfolios. We do professional due diligence on the companies. What it’s done is open the door to people.”

Mott likened BlueTree to a “micro VC,” meaning it doesn’t cut a check shortly after entrepreneurs present their business plans to the assembled group.

“It will be six weeks to three months before we invest,” she said. “We do the background check, the market research, review the legal documents, everything a venture capital firm would do.”

BlueTree may also ask the company to make changes or corrections.

“We make them better,” Mott said. “Sometimes we find things in their documents or structure that puts them in a precarious position and we say, ‘This has to be repaired or amended before we invest.’”

Over the years, BlueTree has tweaked its own operations. It now meets every six weeks, about the time it takes for due diligence.

“When we first started, we basically said, ‘You’ll vote with your check, and if we get 10 members at $20,000 each, we’ll invest,’” she said. “Our minimum was $200,000, enough to make a meaningful investment.”

But industry research showed that successful portfolios achieve a 22 percent return or greater and have 18-25 companies. BlueTree members were picking five or three or seven, Mott said, and it wasn’t enough for them to realize results. So, three years ago, BlueTree had members contribute $30,000 each to a fund that would jointly invest in four to six new companies a year.

“We still do our sidecar so if you want to put more money in, we continue to do that,” she said. “But we’re going to make sure you get 18-25 companies in your portfolio if you’re with us for four or five years.”