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Angel Investors an Alternative for Fueling Economic Growth

Moore County is trying a new way to develop its economy other than by chasing the elusive giant industry bringing hundreds of jobs.

The approach is called "angel investing," where wealthy individuals give money to entrepreneurs.

By:
Michael Clinebell
Fayetteville Observer

http://www.nasvf.org/web/allpress.nsf/pages/9553

The point is to link innovative people with potential investors.

The interest can be driven by a loss of jobs. That’s the case in Moore County, which has lost several major employers in recent years and has had difficulty in finding new industries to replace them.

But obstacles exist to the angel networks as well.

Investors and experts say that the networks do well in a place more like Raleigh, where there is already a lot of technology research and activity.

In Angel networks, the investors are the earliest-stage investors. They give money to ventures too risky for the banks. The investors make money when the company grows and has a "exit" or "liquidity event": merges with another company, is bought, or goes public with a stock offering.

Jeff Reedy’s company Overture Networks fits the profile of companies that get funding: The company is technology-based with enough growth potential to bring investors a big return.

Reedy co-founded the company in Raleigh about four years ago. It provides high-speed networking equipment. The company is still growing toward its exit event.

"You have to find angels that are patient," Reedy said.

In its first year, Overture had $750,000 from angels and $130,000 from its co-founders.

Reedy said that because angels are wealthy, successful people themselves, they often give good advice on how to run a business.

"I have found them to be very helpful in running my business," Reedy said. "At the same time, they don’t get in your hair."

Today, the company has raised more than $18 million from investors and has gone beyond angels to venture capital firms.

Angel networks exist in such places as Charlotte, Greensboro, Asheville, Durham and Greenville. Interest in Moore County and the Cape Fear region is just beginning.

In Moore County, Partners in Progress, an economic development group, is coordinating the angel effort.

They want to tap into the wealth of areas such as Pinehurst and Southern Pines, which are known for wealthy retirees and golf courses.

Through a Web site called Angels for Moore, Partners gives members of its angel network profiles of entrepreneur business ideas.

The investor then calls Partners for contact information about a new business so that the investor can meet the business principals toward possible investment.

The minimum investment at Angels for Moore, which comprises 35 members so far, is $10,000.

Partners screen the businesses, which must be in Moore County, before listing them.

Ray Ogden, executive director for Partners, said the organization does not endorse any business, and each investor makes his own choice.

"I’ve seen statistics that say 70 percent of new jobs in the next 10 years will be created by entrepreneurs," Ogden said.

Moore County is looking for new jobs. In Robbins, for example, several factories have closed: Ithaca Industries in 1998, Carolina Lace in 2000, Mansion Homes in 2002 and Perdue Farms in 2003.

Networks forming

Other Angel networks are beginning in and near the Cape Fear region.

Greg Taylor is the regional director in the Cape Fear region for the Small Business and Technology Development Center, the business extension service of the state’s university system.

Taylor’s office will hold an educational session in early 2005 for potential investors who want to start angel networks.

The sessions are following a program designed by the Kansas City-based Ewing Marion Kauffman Foundation, which promotes entrepreneurship and education.

Investors must qualify, or be accredited, under the Securities and Exchange Commission rules.

For individuals, that essentially means a personal worth of $1 million or an annual income exceeding $200,000.

Bill Martin, president of the Cumberland County Business Council, which oversees economic development, said his office would be interested in helping with a "loose knit" organization as a way to introduce investors and entrepreneurs.

But getting an angel network started in the Cape Fear region may be difficult.

John Draper, president of the North Carolina Technological Development Authority in Research Triangle Park, has an incubator for start-up technology companies.

Draper said the new businesses need the right culture.

Charlotte, RTP and the Triad have enough capital and technology research to give entrepreneurs options and opportunity.

"Those are the obvious areas today that have enough interesting things bubbling out," Draper said.

Michael Gutschmit in Pinehurst is involved with the angel network in Greensboro and is also trying to start another group in Moore County.

"The problem is that we don’t have a lot of business here that really fits the profile for a large fund," Gutschmit said.

The entire eastern part of North Carolina is, in fact, on the low end of business investment in the state.

Of the $442 million raised in venture capital for the state last year, according to the Raleigh- based Council for Entrepreneurial Development, 75.5 percent of it went to deals in the Research Triangle Park area.

Only 3.8 percent went to companies in the eastern part of the state, and 0.3 percent for companies in the western part.

New directions sought

Leslie Scott, director of the state’s nonprofit Institute for Rural Entrepreneurship, said she thinks the demise of big manufacturing has many economic developers looking for new ways to help the economy.

"The larger manufacturing businesses are no longer a very viable option for most places," Scott said following a UNC-Pembroke event in May honoring entrepreneurs.

Because they provide most of the jobs, Scott said the needs of small businesses and entrepreneurs could get more attention.

"It has not been raised to a high-profile level of policy focus. We are on the front edge of some of that change."

The nation’s shrinking manufacturing base amid global competition and lowered trade barriers has been a top economic story since the late 1990s.

From 1999 to the end of 2003, North Carolina has lost about 210,000 jobs, 65 percent from manufacturing, according to the N.C. Employment Security Commission.

There is a push to help small business and entrepreneurs, Scott said.

Private businessman Michael Cain formed WIN, the Wilmington Investor Network LLC, this summer, comprising 35 members.

Minimum investments are $2,500. Investors are accredited. Business are screened.

Cain said investors can expect about one third of the ventures to fail and another third to break even. Only a few hit home runs.

Some angel organizations are more structured than WIN, such as the Blue Ridge Angel Investor Network in Asheville, called BRAIN. Those investors put money into a fund that is dispersed to companies by a board.

Cain said the interest is fueled, in part, by the shortcomings of traditional economic development programs in helping small start-ups.

Cain said he talked with one government economic developer who said he couldn’t help them because "at the end of the day, all I am measured by is how many square feet I rented this year."

Ogden, in Moore County, said that Angels for Moore will eventually break apart from Partners if it grows large enough.

The first meeting between investors and a few companies was earlier this month. All members, and their investments, are kept confidential.

County Commissioner Bob Ewing, who has been involved with Moore politics since 1940, said the angel idea is an interesting attempt to use the wealth of retirees that settle in Moore.

"Moore County right now, from an industry standpoint, is really hurting," Ewing said.

"I thought it was kind of way out there, but I guess if you don’t reach very far you don’t get very far either."

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