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Tech firm ‘angels’ to get some insurance- A program will be set up with $2 million from Pa. to encourage investment in fledgling companies.

In a move to encourage more private investment in fledgling technology companies, the Philadelphia-area Ben Franklin Technology Partners said yesterday that it would insure a portion of such investments.

By:
Porus P Cooper
Philadelphia Inquirer

Officials and some investors described the program as the first of its kind in the nation.

Ben Franklin – which is part of a state-funded network that finances and promotes technology companies – will set up a subsidiary to run the insurance program.

The subsidiary, Ben Franklin Investment Partners, in turn, is being bankrolled with a $2 million state grant announced yesterday by Gov. Schweiker.

"This is an economic stimulus vehicle to get private investors to write checks again," said RoseAnn B. Rosenthal, chief executive officer of Ben Franklin Technology Partners of Southeastern Pennsylvania.

Qualified groups of private investors – individuals with high net worth who are termed "angels" and who sow the financial seeds of new companies – can participate in the program by paying a fee that is similar to an insurance premium.

The angels would pay an annual fee of 1.5 percent of the investment amount being guaranteed. The guarantee would help them recoup losses of up to 25 percent of their investment in a company, but no more than $200,000.

Private investment has fallen off as a result of the poor economy, Rosenthal said. The hope is that the new program will generate as much as $10 million in new angel investment in the region over time, she added.

Rob Weber, a founding member of the Wayne-based angel group Robin Hood Ventures, which has invested about $6 million in the last three years, called the program "very creative."

"I don’t think it is going to cause investors to invest in a company they would not have invested in otherwise, but it might cause them to invest a little more in a company they already like," he said.

Frank Slattery, an area angel investor who has helped create more than a dozen companies in the last six years from research at universities, said the program was an innovative way to attract private investors who are "on the fence" or tend to be passive and want a safety net for any downside.

He added, however, that he was unlikely to use it: "Typically, I am involved in the management of the company, and I am not going to buy an insurance policy against my shortcomings."

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