Angel investors eager to fund promising businesses are
gathering in groups across the country. But consider
yourself truly blessed if you're able to connect with
these elusive alliances. By Anne Field.
Angels. They may be the answer to your prayers, especially
if you own a growing business. These wealthy private
investors step in at the most delicate of times - when
entrepreneurs have outgrown their initial financing from
family and friends but lack the muscle to attract venture
capital. And there's a big supply of backers. In 1996,
some 250,000 angels invested in 30,000 companies to the
tune of $20 billion, according to the Center for Venture
Research in Durham, New Hampshire.
Sounds miraculous. But despite their abundance, good
angels - or even bad ones - are hard to find. And since
they tend to pledge just $50,000 to $150,000 apiece, you
may have to track down a whole lot of them before you've
accumulated the amount you need.
Thank heavens, then, for angel groups. Lately, an
increasing number of investors have formed their own
alliances. They hold regular meetings to swap tips about
promising start-ups and hear pitches from companies
seeking cash. Gatherings may include as many as 200
investors or as few as five. Some are highly structured;
others, informal. But they all provide a systematic way
for investors and entrepreneurs to hook up.
"If it weren't for that group, I don't know how I
would have finally funded my company," says Mary
Schenck Ross, who raised $300,000 from a local angel
get-together for her one-and-a-half-year-old Adaptive
Learning Technology, an educational software design firm
in Santa Fe, New Mexico.
Who joins these alliances? Mostly, successful
entrepreneurs looking to put some of their self-made
fortunes in high-growth investments with the potential for
returns of 40 percent of 50 percent. Because angels invest
less than $1 million in risky enterprises and don't expect
returns for as long as seven years, they differ from
venture capitalists. The latter tend to invest at least $3
million of other people's money in more established
businesses, hoping for a payback in around three years.
Angels are motivated by more than making money: They want
the excitement of launching a business without the
sleepless nights. "It's the difference between being
a parent and a grandparent," says Kathleen Lane, who
has invested in seven start-ups with her husband, Bill,
since joining a Silicon Valley group called Band of Angels
two years ago. "You get the fun and not the
Like many angels, Lane says she and her husband
participate actively in the companies they select, from
faxing appropriate articles to the CEO to sitting on a
firm's advisory board. "My investments are always in
the back of my mind," she says.
For that reason, the groups tend to be regional.
"They want to be close to the company so they can
feel it, touch it," says Jeffrey Sohl, director of
the Center for Venture Research. A Gathering of Angels, a
38-member group in Santa Fe, Focuses on New Mexico, while
Walnut Venture Associates in Boston, with 15 members,
tends to consider businesses in the New England area.
Perhaps the most notable exception is a seven-year-old
group called Investor's Circle, whose 170 members invest
in companies nation-wide. Because this San Francisco-based
organization looks for socially responsible investments,
it puts money in women and minority-owned businesses.
While angel groups may want to reach out and touch
someone, they don't advertise in the Yellow Pages. Even if
you find one, it probably won't release the names of its
members. Whether or not they're part of a group, angels
are highly secretive, ever wary of becoming inundated with
request for money. Tracking down groups is often a matter
of word of mouth and heavy networking through accountants,
business associates, and friends.
In some parts of the country, well-connected law firms are
a particularly good place to start. Peter Goettner,
founder of DigitalThink, a Web-based training company in
San Francisco, hired an attorney with connections to deep
pockets in Silicon Valley. Through the lawyer's efforts,
Goettner was able to contact Band of Angels, which came up
with $1.2 million for his business.
Band of Angels may be the model investor alliance. It was
started in 1995 by Hans Severiens, a veteran semiconductor
industry analyst who found himself barraged by business
plans from entrepreneurs. Investigating just one could
take weeks, especially when it came from an unfamiliar
industry. So Severiens got an idea: Gather a group of
like-minded investors with money to burn who could
recommend investments to one another and pool their
expertise and finances. And they'd have a good time
meeting once a month for a nice dinner, where they'd trade
gossip and listen to presentations from companies looking
for funding. Severiens and an old friend, Jack Carsten, a
former senior vice president of Intel, drew up a list of
20 names and sent out invitations to the group's first
meeting at a posh French restaurant in Palo Alto. Band of
Angels now has over 100 members, and about 65 typically
show up for monthly four-course dinners at the Los Altos
Golf and Country Club. Total investment: $29 million for
about 64 deals.
Making the Cut
Band of Angels is known for its strict screening process.
Entrepreneurs can't talk to the group unless they're
sponsored by a member. That means more than just getting a
stamp of approval: The member investor must have a stake
in the company or be about to take one.
Consider DigitalThink's Goettner. His first move way to
arrange an informal breakfast meeting with Severiens, who
then passed him on to a few members likely to be
interested, including Kathleen and Bill Lane, both of whom
had done stints in the software business. Severiens's
match-making instincts were on the mark. The Lanes looked
over Goettner's business plan, talked to customers,
suppliers, and associates, decided the business was worth
a $50,000 stake, and gave Goettner the go-ahead to appear
before the larger group. And so last June, Goettner made
his 10-minute pitch, the last presentation of the evening,
to the assembled investors over dessert and espresso.
Not all groups host such gala affairs. Band of Angels'
lavish dinners are, after all, appropriate for Silicon
Valley's chummy, affluent high-tech community. Other
groups simply hold early morning danish-and-coffee
meetings in conference rooms. But angels' methods can
differ in more substantial ways, especially in how a group
chooses companies to review each month. At A Gathering of
Angels, the decision is mostly in the hands of founder
Tarby Bryant. At Private Investor's Network, in Maryland,
a special committee passes executive summaries to the
group's 106 members, who respond via e-mail and fax. The
committee bases its decisions on members' reactions.
Methods of post-presentation follow-up also vary. Band of
Angels investors who want to get serious meet the
entrepreneur the next week for lunch. Other groups just
have a session at the end of each get-together, where more
explicit deal-making can occur.
Members aren't the only ones who come through with the
goods. Angel groups are all about networking and sharing
information. Outsiders who hear about opportunities
through members often wind up making key investments. For
example, Schenck Ross of Adaptive Learning Technology
didn't get money directly from anyone at The Gathering of
Angels dinner she attended last year. Instead, one member,
the head of the Smith Barney branch office in town,
invited her to talk to various colleagues and clients the
next week. Two of them eventually invested $25,000 and
$150,000 each. Schenck Ross hopes to become an angel
herself one day. "That's my ultimate goal," she
says, "to be able to nurture other
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