We all know it takes money to make money. But if you’re a cashless entrepreneur with a great idea, where do you turn? A number of start-up companies are getting their funding from angel investors.
According to the New Hampshire-based Center for Venture Research, angels invested $11.9 billion into U.S. startups during the first half of 2007. Part of those dollars was invested right here in Clark County – local high-tech firm Lightfleet Inc., in business since 2003, is 100 percent angel-funded, according to CEO John Peers.
Angel funding helps span the “equity gap,” said Dr. John Becker Blease, a finance professor at Washington State University Vancouver. Entrepreneurs usually need from $100,000 to $5 million to fund their endeavor. Financial institutions are usually loath to lend that much, while venture capital firms aren’t interested in such “small potatoes.”
Clint Page, CEO of Dotster Inc., a successful, young high-tech firm headquartered in Vancouver, said that angel investing in the Vancouver-Portland metro area “is coming of age.
“Angel investing is important to any region’s future,” said Page. “It takes capital to develop the economy.”
According to Page, there is a significant number of angel investors in the Vancouver-Portland area. Kathryn Shimabukuro, founder of the Women’s Investment Network and current Oregon Entrepreneurs Network Chairman of the Board, said she had seen a 10 percent to 15 percent increase in the number of people participating in local angel capital events. Although both of these “angel portals” are located in Portland, they do fund Washington-based ventures, and many members are from Clark County.
Finding your angel
Locating angel capital is a combination of networking and just plain working. Holly Files, WIN chairwoman, said the place to start is a first-rate idea and solid business plan.
“Make sure there is a market with a problem that you can solve and they are willing to pay for your solution,” said Files.
Dr. Robert Wiltbank, assistant professor of strategy and entrepreneurship at Willamette University, summed it up this way:
“The factors that lead to raising angel investment are (a) great social network, great persuasive skills, great trustworthiness and reputation, fantastic business opportunity, genuine business acumen, and solid track record.”
Because angel investors are typically looking for a higher return than is available from less risky investments, said Shimabukuro, an entrepreneur’s business plan should detail how investors will make money. For example, the “exit strategy” must be clearly defined.
When your story is ready to tell, said Peers, do a reality check by trying it out on your friends and family. Then widen your networking circle to include friends of friends, using the “ripple effect.”
Targeting investors isn’t a bad idea, either. People tend to invest in things they can use, or that they are interested in. For example, a firm developing computer technology for seniors may focus on older investors, or investors with aging parents.
Young or old, selling an idea to investors, said Peers, is a dichotomy of “delusions of grandeur and a firm set of feet on the ground.” Entrepreneurs must be able to present the big picture of five to seven to 10 years out, but must also know the details of what they are going to do today, in the next hour.
Attracting angels to Clark County
Page said that the current subprime mortgage situation has created a challenging environment for emerging businesses, because obtaining start-up financing from a bank is virtually impossible. Therefore, competition for limited angel dollars is fierce. Many people would like to see more angel investing in Clark County.
“Clark County is sitting on a lot of money,” said Clark County resident Kathy Sego, herself an angel investor and owner of an herb farm started here. She also helps other start-ups find angel financing.
According to Sego, local investors tend to put their money behind banks and real estate – but she said the real estate options are minimizing. Instead of concentrating so much on construction, Sego would like to see more “harvesting of the intellectual wealth” of the area.
“Clark County’s economy is based on pulling resources out of the ground, and letting others add secondary value,” said Sego. “This is dead wrong.”
In October, Washington State Governor Chris Gregoire announced the designation of 11 Innovation Partnership Zones – geographic areas intended to promote and develop the state’s regional economies. One of those zones is right here in Clark County, mostly thanks to the efforts of the Columbia River Economic Development Council. Land dubbed the “Discovery Corridor Innovation Zone/Steinmueller Innovation Park,” focused on semiconductor and micro-device design, integrated circuit, or IC, manufacturing and processing, display technology and multimedia, is located near the Washington State University Vancouver campus.
Although Innovation Partnership Zones receive special access to state funding and resources, Clark County did not receive any grant money for the 2007-2009 capital budget year.
So, for the near future, Clark County entrepreneurs will need to continue to beat the bushes to find the right angels for their company. The upside to this situation, said angel investor Spencer Brown, Clark County resident and retired CEO of the infomercial advertising agency formerly known as the Tyee Group, is that only the crème de la crème of start-ups get capital. And these businesses are most likely to succeed because they have the most compelling concept and business plan.
“Success begets success,” said Brown. “If a local company gets angel financing, that will help other companies.”
Page concurred, saying that companies that succeed offer a “huge benefit to the community” by spawning new growth and business.
Successful entrepreneurship, said Peers, requires both hard-working individuals with innovative ideas, and investors who are prepared to risk their personal assets to help these ideas come to fruition. It is this “magic” combination of the right idea, the right team, and the right investors, he said, that makes angel investing such a potentially “marvelous and dynamic” process.
“There’s no progress,” he said, “without risk.”
REGIONAL ANGEL PORTALS
Although many private investors reside in Southwest Washington, there is not yet an angel portal located here. However, the following angel portals are open to funding Southwest Washington entrepreneurs with solid business ideas:
Oregon Entrepreneurs Network. www.oen.org
A nonprofit organization dedicated to helping the entrepreneurial community of Oregon and Southwest Washington launch, manage and support early-stage ventures with high growth potential in any industry.
Portland Venture Group. 503-697-5907
ASK AND YOU WILL RECEIVE
WSU Vancouver professor investigates women’s access to angel capital
Dr. John Becker Blease, who teaches finance at Washington State University Vancouver, recently co-published a paper with Jeffrey Sohl, director of the Center for Venture Research at the University of New Hampshire.
In the paper, Becker Blease looked at how successful women entrepreneurs are at obtaining angel funding. Although Becker Blease said the research “raised more questions than it answered,” some things were clear.
While women-owned businesses are the fastest growing area of new business ownership in the U.S., Becker Blease’s research suggests that a smaller percentage of women business owners seek angel funding – only 8.9 percent of all the angel capital proposals in the study were from women.
One reason this may be true is that women feel more comfortable making their pitch to women, and until recently, there have been precious few women angel investors. Even today, women represent only about 13 percent of the angel investor population. Another possibility, said Janis Machala, co-founder of the Seraph Capital Forum in Seattle – the first women-only angel investment group in the nation – is that “women may not think big enough.”
According to Machala, many women start a business out of personal frustration, or as a source of supplemental income, not because they necessarily want to create an economic force.
The good news, however, is that Becker Blease’s research also indicated that the few women who do seek angel capital have nearly as much success in obtaining it as men. To quote Becker Blease’s paper, “We find no significant difference between the rates at which women-owned businesses are funded (13.33 percent) compared to male-owned businesses (14.79 percent).”
ON THE WEB FOR WOMEN
Seraph Capital Forum. www.seraphcapital.com
The first women-only angel organization in the U.S., Seattle-based network of active women angels in the Puget Sound region.
Keiretsu Forum. www.k4forum.com
Claims to be the world’s largest angel investor network.
The closest chapter is in Seattle.
Venture Associates. www.venturea.com/clubs2.htm
ANGEL INVESTMENT EVENTS
Angel Oregon. Don’t let the name scare you – this event is for all local angel investors and early-stage entrepreneurs, north and south of the Columbia River. At this event, scheduled for March 5, 2008, 10 entrepreneurs present their business case to a panel of regional investors. The Oregon Entrepreneurs Network-sponsored event also helps educate investors about what to look for in a good investment.
Venture Northwest. Slated for Fall 2008, investors and entrepreneurs can network and educate themselves about new technology and research at this event. According to OEN, companies that have presented at Venture Northwest have raised over $68 million in angel capital.
Visit www.oen.org.
