News

Clubs, Markets Boost Angels

Angel investment activity is picking up in the Philadelphia area after falling off because of the tech and telecom busts.

By:
Peter Key
MSNBC
Philadelphia, PA

http://www.nasvf.org/web/allpress.nsf/pages/8065

Consider:

* A year-old angel group is attracting 50-plus people to its monthly meetings and at least two other angel groups are being formed.

# A $2 million fund that guarantees investments by angels has agreed to work with five groups of them and is getting ready to issue its first guarantee.

# An angel fund has received $500,000 from the state and hopes to close on at least $3 million, including the state money, next month.

The increase in angel activity, which is largely fueled by the rising stock market, isn’t just confined to the region. Nationwide, angels were more active the first half of this year than they were the first half of last, according to Jeffrey E. Sohl, director of the University of New Hampshire’s Center for Venture Research.

Statistics for this year aren’t yet available, but last year, angels made $15.7 billion in investments, according to the center. While that amount seems impressive, it’s little more than half the $30 billion in investments they made in 2001, when many still were flush from the last stock market boom.

Since almost all their investments are in companies that are too young to be considered candidates for venture investment, the wealthy individuals called angels are considered important contributors to a region’s entrepreneurial health. That’s why state and local economic development agencies are trying to encourage angel investing and why the rise in angel activity is considered good for the area.

A big reason for the increase is the comeback of the stock market, said Rob Weber, a founder and board member of an angel group called Robin Hood Ventures.

"As the stock market itself gets better, your angels get richer, and when they get richer, then they historically and consistently have a share of their net worth that they allocate to these kinds of networks," Weber said.

The increase in angel activity is what led Richard Anthony to start the Entrepreneurs Network last year.

A longtime human resource executive who started his own business, the Villanova-based Solutions Network Inc., 10 years ago, Anthony was used to getting calls from people looking for work. But in the summer of 2002, he started getting calls from people looking for deals, typically former corporate executives who wanted to start, buy or help turn around a company.

When the calls kept coming, Anthony decided to form an organization for the callers.

"I enjoy connecting the dots and this was an opportunity to connect a number of dots," he said. Less altruistically, Anthony said, he also thought that if he could help young companies get money, some might become customers of Solutions Network, which provides human resources and management consulting.

The Entrepreneurs Network held its first meeting in September 2000. Six people attended.

The group’s most recent meeting, which was held earlier this month at the Radnor Hotel, drew more than 60 people. Six made presentations in an attempt to get funding for their companies.

None has yet received funding, but Anthony said one person, who was looking for CEOs for the company featured in his presentation and another company he is affiliated with, seems to have found people for both positions because of connections he made at the meeting.

The Entrepreneurs Network isn’t the only new angel group in the area. Some angels in the Blue Bell area have formed the Blue Bell Angel Network and an attorney who works with angels is talking about forming another group of them in Montgomery County, said Stephen Harris, the chief investment officer of Ben Franklin Investment Partners Guarantee Fund.

The fund was launched a year ago by Ben Franklin Technology Partners of Southeastern Pennsylvania, in cooperation with the state, which provides the economic development agency with its money through the Ben Franklin Technology Development Authority umbrella entity. In addition to the Entrepreneurs Network, it also will guarantee investments by members of three other Philadelphia-area angel groups — Robin Hood Ventures, the Loosely Organized Retired Executives and the Private Investors Forum — and the Lancaster Angel Network.

The Ben Franklin fund only has $2 million, but since it only guarantees 25 percent of each investment, it can use that money to guarantee $8 million of angel investments. It hasn’t made any guarantees yet, but is about to receive a request from Robin Hood to consider guaranteeing an investment by members of that group, Harris said.

The fund is trying to figure out a way to work with the Mid-Atlantic Angel Group, a fund for angel investors run by Innovation Philadelphia. It may wind up doing that by guaranteeing investments that angels who have money in Mid-Atlantic Angel make alongside investments by the group, Harris said. It can’t guarantee investments made by Mid-Atlantic Angel because that is a fund, he said.

"We’re trying to provide an incentive to the person that makes the decision [to invest] and in the case of a fund, it’s centralized management" that makes the decision, Harris said.

Mid-Atlantic Angel recently received $500,000 from the Ben Franklin Technology Development Authority, a state agency that promotes technology investment in Pennsylvania. Innovation Philadelphia, a city-, state- and privately funded economic-development organization, hopes to make that part of $3 million it closes on for Mid-Atlantic Angel in January.

Innovation Philadelphia has commitments from about 41 individuals and organizations to invest between $2 million and $2.2 million in the fund, said Innovation Philadelphia CEO and President Richard Bendis. That means it has to raise another $300,000 to $500,000 to reach its $3 million goal. Bendis said the group will try to get that money from another 80 individuals or institutions it has identified as likely candidates to invest in the fund.

"We don’t expect to get them all and we don’t need them all," he said.

Some of its investors may come from the Entrepreneurs Network. Anthony is going to solicit people who have attended its meetings to see if they are interested in investing in Mid-Atlantic Angel as a group.

"We’ll be putting out a notice and inviting people to come to a meeting and hear about MAG," he said. "If they’re interested, we would create an angel group within the Entrepreneurs Network and participate in MAG."

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Angels Begin to Unfold Their Wings of Gold
New interest in early-stage financings

Bay Area angel investors say they’re seeing early signs of a pickup, with higher quality deal flow and increased interest among investors for promising startups.

By:
Mark Calvey
The Business Journal of San Francisco

http://www.nasvf.org/web/allpress.nsf/pages/8066

That’s by no means a unanimous assessment, and no one’s calling this a return to the boom times. Still, whispers heard where angels gather suggest a turnaround is at hand. Some talk about target companies receiving multiple offers of funding, or investors being told that there was no more room for angels’ money in a deal.

Others speak excitedly about recent deals in which the shares in their portfolio companies are getting a higher valuation from later-round investors.

"Angel activity is alive and well," said Carol Sands, founder and managing member of Palo Alto-based Angels’ Forum and the affiliated Halo Fund.

But an informal survey of the wealthy individuals that invest in risky startups shows the still-uncertain health of the financing ecosystem that nurtures a company from the friends-and-family stage to angel financing to venture capitalists to initial public offering or merger.

Many erstwhile wealthy individuals, often young dot-commers who considered themselves angel investors at the boom’s peak, no longer qualify as so-called accredited investors. Angel investments are often limited to such accredited investors, who have at least $1 million in net worth or annual income of at least $200,000.

"At the height of the bubble, everyone was calling themselves an angel investor," Sands said. "We had a gold rush mentality."

Many of the Bay Area’s angel investors that survived have remained active throughout the downturn.

But many of those say they’ve been chastened by their bad investments and have increased their level of due diligence before writing a check.

Robert Miller, chairman of Hayward-based PRD Co. and a member of the East Bay angel group Keiretsu Forum, represents the new face of angel investing — a return to its roots where experienced, wealthy investors quietly look for opportunity and innovation without the arrogance and fanfare that was often seen among the dot-com crowd.

"I’m a risk-taker. I trust my gut," said Miller, who says his half dozen or so investments this year include three real estate investments and two in young biotechs.

Miller said he likes working with other angels because it increases his deal flow and ability to invest in a broader range of industries.

For instance, Miller and 16 other Keiretsu members recently invested a total of $770,000 in PS Pharmaceuticals Inc., a South San Francisco company developing a drug to treat diarrhea in AIDS/HIV patients. With further testing, always an expensive proposition, the company might also be able to expand its market by treating irritable bowel syndrome.

PS Pharmaceuticals is one of 19 companies Keiretsu members have financed this year, investing a total of $6.3 million.

"These companies are coming to us because we’re offering more than money," said Randy Williams, founder of the 3-year-old Keiretsu Forum, which has 140 members. "We’re opening our Rolodexes and sharing our experience and resources."

Keiretsu has launched six other chapters in other cities and is raising money for Keiretsu Venture Partners, a $100 million venture fund. Both are indications of increased activity among angel investors.

Angels’ Forum, founded in 1997, is also enjoying an active year. The group of 22 investors meets weekly. They have poured a total of $3 million into three new investments and 13 follow-on investments in existing portfolio companies.

"Several deals are pending and expected to close later this month," Sands said. "But no deal is done until it’s closed."

Tenex Medical Investors, a Burlingame angel group of about 80 members focused exclusively on life science, has also remained active.

It’s an encouraging sign that angel investing activity is returning to levels seen before the bubble of the late ’90s, said Norm Sokoloff, chairman of the deal-screening committee for the angel group that was also founded in 1997.

"We’re getting back to more normal times," Sokoloff said.

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