Shawn Peterson: Startups benefit from the wings of angels
Posted: 06/24/2012 at 1:15 am
Editor’s note: This is the fifth in a series of six columns about the Corporate Partnership for Economic Growth, a private-sector initiative to drive regional growth.
“Angel” investors are an increasingly important source of capital for early-stage companies. Angel investors take the form of high net worth individuals investing on their own, groups of angels working together to fund deals and seed-stage angel funds. Angels look to provide capital to start-ups with potential for fast growth — normally well before traditional venture capital funds are willing to invest and banks are willing to lend money.
Angel investors often take an active role in company management, providing experience, guidance and access to their networks — all highly valuable resources far beyond money alone. Active angel investors are often the difference between success and failure in many start-up companies.
Stakeholders from throughout the region developed an entrepreneurial action plan, which CPEG supports, encouraging the development of ways to increase access to non-traditional capital. Elevate Ventures, a venture development organization, was engaged to develop these programs.
Elevate Ventures is now piloting a new entrepreneurs-in-residence program to coach other local entrepreneurs in how to obtain this type of funding. Elevate has also developed an angel network that links investors together to increase the pool of investors and likelihood of finding the right investor that fits a company.
Also, Elevate has developed its own investment fund that co-invests alongside other angels to spread the risk taken on by angel investors and encourage more deals to be funded in the region. Local investors like these programs because it helps them more quickly find more opportunities that fit their comfort level without additional hassle or time.
To highlight the importance of angel investing, CPEG recently sat down with four investors to gain their perspective.
Andrew Williams, The Charter Group: “There is a lot of innovation in this region and we provide the non-traditional capital needed to launch emerging businesses. We partner with Elevate to find new opportunities to connect to our angel investors. These investors are typically successful entrepreneurs themselves who have been there done that. Not only should an Angel investor provide funds, but mentoring, because with their investment they are vested in the success of the company.” (Charter Group began in 1988 and is headquartered in Grand Rapids, Mich. Williams opened the Mishawaka office in 2009.)
Terry Schlotterback, StepStone Angels: “I started a Stepstone chapter in Warsaw, the orthopedics capital of the world, because I saw a need to organize capital in Kosciusko County and direct that at new startups.
“We work with Elevate Ventures to find and assist startups that need capital, primarily in life sciences and the medical device field. Our goal is to create wealth for Stepstone members and to see young companies succeed. While not traditional economic development, we play an important role in the area’s economic development by bringing advice, as well as capital, to aspiring entrepreneurs.” (Stepstone Angels is headquartered in Indianapolis and has chapters through the state, including Warsaw.)
Jim Larkin, Magnet Investors: “Prior to the role of an angel investor in a new company there is what is known as the ‘three Fs’ — friends, family and fools. These are people willing to take a bet on the entrepreneur. The angels take on the next level of risk and then theoretically the venture capitalists or private equity group will invest when the business reaches the next level. To a large extent, we partner with Elevate because they assist in making sure that the entrepreneur is better prepared for the presentation and matches our investment criteria. This improves the number of opportunities we can realistically consider.” (Magnet Investors started two years ago and is made up of 20 qualified investors interested in contributing to a vibrant economy.)
Larry Abdo, Irish Angels: “There is no entrepreneurship without angel investing somewhere along the line. If you want to be an entrepreneur you don’t have to have the world’s biggest plan or have the largest market share. You have to have guts and the heart to do it. Once your growth is faster than your income or your need for overhead is stronger than your profit, then you need to bring in an angel from a different path.” (Irish Angels began in 2000 and mentors young companies to help them grow and find possible sources for funding. Irish Angels does invest in Notre Dame ideas through an investment fund called The Fish Taco Fund.)
Next week CPEG will profile the work of the Small Business Development Center.
Shawn Peterson is president and CEO of the Corporate Partnership for Economic Growth.