Washington State Angel networks may take wing in smaller cities

Yakima, Wenatchee and Port Angeles aren’t exactly hotbeds of early-stage investment activity.

But a new program bankrolled by the Washington Technology Center and the U.S. Commerce Department could help bring money and investment expertise to smaller cities outside the Puget Sound region.

By:
John Cook
Seattle Post-Intelligencer

The WTC and Commerce’s Economic Development Administration this week earmarked $500,000 to set up investment networks and entrepreneurial classes in six to eight communities in the state.

Establishing angel networks in Yakima or Wenatchee might seem a little strange. After all, there aren’t many Microsoft millionaires or Internet tycoons hanging out at the local Starbucks.

But Tab Wilkins, director of operations at the WTC, a non-profit organization that promotes technology development in the state, said there is money to be tapped in Eastern Washington, on the Olympic Peninsula and in other regions. He said angel groups — individuals with high net worths who meet regularly to invest in early-stage companies — have informally organized in Yakima and Port Townsend.

"You would be surprised. There are actually wealthy individuals in a number of these communities," Wilkins said. "The secret is to convince them to come together and get interested in investing in their community around new company development."

Half of the $500,000 grant will be used to organize the investment groups, creating a statewide network of wealthy individuals who can share deal flow and expertise. The rest will be used to support early-stage business owners. As part of that effort, the WTC plans to hire an individual to assist entrepreneurs with business plans, marketing programs and financial presentations.

If successful, the program could help generate jobs and new industries in areas where forestry, fishing and farming are declining.

Bellingham could use more private capital. Even though the city had the fastest high-tech employment growth in the state between 2000 and 2001, very little money flows to Whatcom County.

"The statistics are such that 87 percent of VC money gets invested within a one-hour driving radius of their offices. So with most of the VCs in downtown Seattle, Bellingham doesn’t see much if any VC money," said Paul Grey, chief executive of Bellingham-based AudienceControl. "If our high-tech companies are going to grow, then we need to find other sources of funding. And developing an angel network in the non-metropolitan areas is the most logical thing to be doing."

David Brader, technology coordinator for the Washington State University Cooperative Extension in Port Hadlock, is working with business leaders on the Olympic Peninsula to form an investment club for early-stage companies.

"There is a lot of creativity in a lot of Washington’s rural areas, but access to financial markets is nil," Brader said. "And trying to leverage money out of the populated areas is extremely difficult." If an early-stage investor network is established in the state, Brader believes, it could ignite businesses in rural regions and also serve as a feeder system to the larger venture capital firms in Seattle and Spokane.

The WTC initiative is modeled on a 4-year-old program in Oklahoma where angel investor groups work together to invest in start-ups. In a state with only two venture capital funds, the program has served as a catalyst for private investment, said Tom Walker, executive vice president of the Oklahoma Technology Commercialization Center.

In order to be successful, Walker said, the WTC needs to take over most of the administrative functions for the regional investment groups. That’s because angel investors — made up of doctors, lawyers, car dealers and other successful entrepreneurs — have little time for managing an organization on their own. Another key factor is finding innovative business plans.

"You have to maintain an engine to produce deal flow or the angel groups will disband," he said. "If they don’t have anything to look at or invest in, they will move on."

To help jump-start the Washington program, the WTC has joined with Seattle’s Alliance of Angels to develop classes called "Eye of the Investor." One will be held later this month in Bellingham.

Wilkins, who has worked in economic development programs for 20 years, is hopeful that the program will have a positive effect, from Pullman to Port Townsend.

"Will there be a Microsoft in every one of those cities? Probably not," Wilkins said. "But you do hear stories of Web designers who used to be foresters or fishermen that are doing some job changeover. In Twisp, if you can employ 10 or 15 people doing something like that, boy, you have done some good stuff."