Wanted: date with an angel – Conference seeks to bring wealthy investors together in support of entrepreneurs

Indiana might be on the verge of a historic influx of wealthy "angel" investors like the ones quietly financing entrepreneurs Christopher Day and Todd Ryden.

Angels plowed $1.75 million into StarCom Broadband before the former Purdue University fraternity brothers sold it three years ago, and they pumped an undisclosed sum into their newest company, ViaStar Energy, which helps municipalities and apartment owners find water leaks, among other inefficiencies.

By:
Norm Heikens
Indianapolis Star News

http://www.nasvf.org/web/allpress.nsf/pages/8631

The entrepreneurs say StarCom created 15 jobs paying an average of $45,000, and ViaStar’s dozen jobs pay $48,000 — well above the $32,000 state average — and are helping rejuvenate the state’s obsolete economy.

Because of the private, secretive nature of the investments, even the experts don’t know how many angels operate in Indiana or how much they’re investing in these startups.

But companies the likes of Conseco, Hat World and First Internet Bank were started with angel financing, and economic development experts say the state needs lots more angels to encourage entrepreneurs to fill in holes left from three decades of declining manufacturing jobs.

The late Tom Binford, an Indianapolis business leader and angel investor, once quipped that risk-averse Hoosiers dole out little "gambling money" to startup companies.

But the Indiana Venture Center, a nonprofit started last fall to promote entrepreneurship, finds itself unexpectedly flush with hundreds of people interested in angel investing.

The Venture Center is sponsoring a forum March 30 in Indianapolis to introduce wealthy people to the concept of thickening their wallets with returns greater than generally available in the stock market, mentoring entrepreneurs and playing a key civic role of helping to diversify the economy.

Most are wealthy businessmen and women who get excited about a certain technology or entrepreneur. Many move quietly. Angels generally don’t operate in offices with signs over their doors proclaiming intentions to invest.

Venture Center Vice President Bruce Kidd, who has tracked angel investors for nearly a decade, had about 100 names of potential angels in his Rolodex last year, but only 20 to 30 were active.

Now he has 425 names, most of whom he doesn’t know, and the list is growing rapidly. Kidd hopes getting them together might boost excitement about investing.

"People are understanding the power of this," Kidd said. "They’ve never had any reason to know each other. We’re trying to change that."

Donald F. Kuratko, who runs Ball State University’s nationally ranked entrepreneurship program and sits on the Venture Center board, said the state joins the national trend in which communities and states look to angels to finance companies with innovative ideas and technologies. "If we can get behind these companies now, we could be seeing much better jobs available," Kuratko said.

Despite diversifying into service jobs, Indiana still has one in five workers directly involved in manufacturing, one of the highest concentrations in the nation.

Manufacturing jobs are vanishing with technology and productivity gains and the continued move to send jobs to low-cost countries. Entrepreneurs haven’t filled the gap with new, well- paying jobs.

In 2000, Indiana ranked 40th in the nation in number of "gazelle" companies, the 3.5 percent of businesses nationally that create nearly all net new jobs.

Dubbed by the Waltham, Mass., research firm Arc Analytics, gazelles are defined as businesses doubling in sales within four years from a base of at least $100,000. Indiana had one gazelle for every 1,013 residents, according to Star calculations of Arc Analytics data. The national average was one for ever 902 residents, and some high-wage states such as Massachusetts had one for every 700.

Though the state replenished the 21st Century Research & Technology Fund with $75 million and the private sector raised $72 million to invest in life sciences companies last year, entrepreneurs and economic development experts say the lack of angel investors has slowed growth.

In typical startups like StarCom Broadband and ViaStar Energy, entrepreneurs first spend their own money and the money they glean from friends and family to prove a concept works.

Then, if entrepreneurs can find them, angels typically infuse $25,000 to $100,000 in cash in exchange for equity in the company to finish the concept and prepare to roll out the business.

No one knows how many angels exist, or how much they invest in Indiana.

However, lots more Hoosiers might have the means to be angels, Census data suggest.

Indiana had 34,579 households with incomes of $200,000 or more in 2000, the agency says.

Companies with big growth plans and correspondingly large financial appetites then move up to venture capital, which usually comes from highly organized venture funds in increments of at least $2 million. Indiana has several venture funds.

Until recently, Indiana has had limited success in attracting angel investors.

Venture Club of Indiana was started in 1984 to introduce entrepreneurs to venture capitalists and angels, but Kidd, who worked in a state small-business assistance agency before becoming a consultant and then joining the Venture Center, says few actual angel investments resulted.

In 2002, Kidd, then a consultant, started AngelNet, an Internet site where entrepreneurs posted business plans and, it was hoped, angels could view the plans in the privacy of their offices.

Last year Kidd decided to stop allowing entrepreneurs to post business plans on AngelNet until he can figure out a way to make it work more effectively. Angels were not frequenting the site, he said.

Kidd thinks the site violated a cardinal rule of angel investing: Wealthy people want to sit across tables from entrepreneurs to gauge competence and look for the sweat popping — evidence the entrepreneurs will give the business their all.

Several factors in the past few months have piqued interest in angel investing, say Kidd and other observers:
• The economy is improving, giving entrepreneurs a better chance of succeeding.

• Wealthy people want more promising places to invest their money than regular stock markets. Many want annual returns approaching 20 percent.

• Baby boomers are beginning to sell their entrepreneurial companies but want to stay involved in business before retiring. They are more comfortable with risk than their Depression-scarred parents.

• New state economic development initiatives and the rise of nonprofits like the Indiana Venture Center, BioCrossroads and TechPoint are stirring interest in entrepreneurship.

The new interest is widespread.

In drumming up support for the forum, Kidd and Venture Center President Steve Beck have come upon new loosely organized groups of angels in Anderson, Bloomington, Evansville, Fort Wayne, Hammond, Muncie, South Bend, Terre Haute and Richmond.

Ball State’s Kuratko doubts the interest is a fad.

Communities around the state have set up small-business incubators to help fledgling companies, then they realize the companies have meager chances of smashing successes without angels, Kuratko said.

In Muncie, that discovery led community leaders to travel to other cities to learn how they found angel capital. Wealthy people tend to be motivated more by civic pride to replace lost jobs than potential for big returns on their money, he said.

The Venture Center forum March 30 is designed to protect identities of angels who don’t want to be deluged with people wanting their money; it’s by invitation only. "This is a private club. I do not mind keeping people out," Kidd said.

For entrepreneurs, it’s a club that could have a big payoff.

"The question has always been, how do you find them?" said Jean Wojtowicz, president of the finance company Cambridge Capital Management Corp., which finances entrepreneurs. "Most of these people don’t want a neon sign pointing to where they are."

ViaStar angels Terry Aff and Al Wurster, of Fishers, are clear they’re in it for the money.

Like many angels, Wurster is betting on the founders as much as the technology.

Wurster, a fraternity brother of Day’s at Purdue University, hired Day at his commercial construction company and came to know him as an aggressive worker.

"He did an excellent job at anything he touched," Wurster recalled.

Aff, who owns a machine tool distributorship in Westfield, was introduced to Day and Ryden by an angel already backing ViaStar.

"It’s a high-risk thing, so you don’t want to invest any more than you can laugh off," Aff said. "I only bet a cow or two."

Plenty of Hoosiers have money to invest, backers insist. The trick is to convince them it’s good for them and their communities.

If Indiana angels could get to know each other and invest in each others’ companies, they could spread risk and take advantage of their backgrounds, Kidd figures. Experts in certain technologies could help assess potential for new products, for example. Forum supporters say the economy won’t show improvement from new angel investing for at least two years, but more likely five.

Tips on finding and working with angels
• Network in business organizations like chambers of commerce to find people who know wealthy individuals. Angels avoid limelight because they don’t want to be deluged with requests for money.

• Ask lawyers, CPAs and other professionals. Some know of wealthy individuals who might be interested in angel investing. Or they might invest themselves.

• Write a thorough business plan. Angels rarely consider ideas sketched on napkins.

• Angels must be accredited investors as defined by the Securities and Exchange Commission. Individual accredited investors must have had gross income of at least $200,000 a year in the past two years and have a reasonable expectation of making that much or more in the current year. Couples must make $300,000 within the same time constraints. Or the individual or couple must have a $1 million net worth.

• Ask a potential angel if he or she will serve as a "smart" angel, or someone who offers advice in addition to investing. An angel experienced in medical devices can pass along invaluable information about navigating government regulations, for instance.
Source: Ball State University