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How to Be an Angel
With many stocks still pricey, investing in start-ups offers the most bang (and potential risk) for the buck

Monday, Aug. 18, 2003, TIME Magazine

The stealth recovery that began almost two years ago has finally become evident with last quarter's surprisingly strong 2.4% GDP growth rate. It's also apparent in the panic prevailing in the gloom-loving bond pits on Wall Street, where traders have sent long-term interest rates soaring. With times getting better, you would think investing would be getting easier. But nothing looks cheap. Even after steep declines, many stocks remain expensive relative to earnings. Bonds are a death trap during periods of faster growth. Real estate never fell. Money-market yields barely cover a fund's expenses. So you have to look beyond the traditional stocks-bonds-cash-real estate mix to find any broad investment categories that are truly bargains.

But there is one area of promise: angel investing, which in the past has also been known as investing with friends, family and fools. If you ever cut Cousin Lou a check to finance his tattoo parlor, you know what I mean. But angel investing has come a long way in recent years, enabling well-heeled and business-savvy investors to get a meaningful stake on the ground floor of a variety of promising start-ups. Although Cousin Lou may tempt you with free tattoos (think of the possibilities), you can get stakes in a dozen or so new companies vetted for their potential by investing $75,000 to $150,000 in an angel fund.

Why now? Private-asset values have taken a beating in the recession, and start-ups are desperate for financing. Four years ago, a typical $100,000 angel investment would have bought a 0.5% stake in a new company. Now the same investment probably buys a 2% to 5% stake, and you're investing at the bottom of the cycle. Don't expect a swift payback, however. Angel investments may remain illiquid for five to 12 years, which could encompass two or even three economic cycles. But the odds of long-term success are best if a company starts during a recovery and finds its footing before the next downturn. (Fees for angel funds run at 1% to 2% of assets, and as with hedge funds, the managers take 10% to 20% of the profits.)

Angel investors are essentially venture capitalists — their investment will either pay off big in the long run or lead to the kind of tax deduction no one ever wants (as in flop). The main difference is that angel investors provide seed money, usually on the basis of a business plan. Venture capitalists have provided such funding in the past but are now so large that they will not get involved until an operation is up and running and seeking to get to the next level.

With angel investing, though, you can exact control over management. Indeed, the typical start-up looking for angel funding wants it from people who can help as board members or advisers. "The perfect candidate is a retired, successful entrepreneur who can provide valuable counsel," says Christopher Starr, managing director of Innovation Philadelphia, a regional economic-development group that finds financing for entrepreneurs. A perfect set of 10 angel investors throwing in $100,000 each to reach the $1 million mark that many start-ups want would include one or two attorneys, accountants, consultants, bankers and industry executives, along with some silent investors, Starr says.

The high stakes — and potential for failure — rightfully keep most folks from being angels to a single company. If you're going to give it a try, make sure you have an attorney well versed in private equity draw up the agreement, clearly spelling out any role you may have on the board and your rights if there is a change in management (in which case, you want the right to sell). Angel clubs, modeled on the informal investment clubs that became so popular among friends in the '90s, are popping up in many cities and often are eager to add investors who have some expertise. For information, check the websites and

If you're interested, there are a few angel funds raising money, including the Mid-Atlantic Group Angel Fund, Nashville Capital Network( and South Florida Angel fund ( This is serious hands-on investing, but at least you know you're getting in cheap.

New venture capital fund seeks to raise $5M to investment in early-stage Florida companies
February 07, 2003 By: Daily Business Review staff and wire services

A newly formed South Florida investment fund has received commitments totaling $1 million for investments in early-stage companies and is hoping to raise $1.5 million more, according to Mick Lopez, CEO of New Idea Center, a venture capital consulting firm in Coral Gables. More than 20 individuals have committed at least $10,000 per year for five years to what's known in the venture capital industry as an angel fund. This money is raised from individuals and invested in companies that are still developing products and services. The angel fund is looking for more individual investors who meet the SEC's minimum wealth requirements for putting personal funds at risk. Zach Bell, a fund co-founder and professor of entrepreneurship at the University of Miami, said the fund is seeking $5 million from 100 investors. To start, it must raise at least $2.5 million. The angel fund plans to provide $200,000 to $300,000 to each early-stage company it invests in, said Bell, who is also a partner with Langley Group, a business consulting and investment banking firm. The fund plans to focus on Florida companies with particular interest in firms based in South Florida, Lopez said. "After the venture capitalists in Florida migrated to larger-sized deals over the past two years, there was a great funding gap for early-stage companies," Lopez said. As a result, young companies could not attract capital to pay for operations until they either grew large enough or generated enough revenue to attract institutional investors. The fund will be modeled after other angel funds in the country such as Dinner Club in Virginia and the Band of Angels in Silicon Valley. Dinner Club is an early-stage venture fund that makes investments in high-tech companies. The Band of Angels is a formal group of 150 former and current tech executives and entrepreneurs who provide capital to start-up companies. The Band of Angels invests across all high technology categories. In contrast to those angel funds, Lopez said this the New Idea fund would be open to ventures in any industry. Once $2.5 million is raised, an executive committee of six to 12 individuals would be elected. "There would not be a managing partner per se," Lopez said. Bell said committee members would screen business plans, track investments and perform background checks among other duties. Lawyer Charles Pearlman, a shareholder in the Fort Lauderdale office of Adorno & Yoss, helped set up the fund. The fund is trying to enlist the support of local universities such as Florida International University, Florida Atlantic University, Nova Southeastern University and University of Miami. Fund organizers want the universities to provide ideas and concepts and students who would work with angel investors to evaluate investment candidates and track companies that receive funds. Fun organizers also hope to tap professors' knowledge and experience. "By creating a managed fund that addressed the early-stage funding gap inherent in new ventures, we can significantly raise the bar for local commercialization opportunities by focusing our efforts on the creation and expansion of promising young firms," Bell said.

eFiltro New Idea Center Announces South Florida Angel Investors Start Fund with $1M Committed
BUSINESS WIRE & Various Press - Feb. 5, 2003

--New Idea Center announced that it has $1M in commitments for an angel investor fund focused on early-stage venture capital in South Florida. Over twenty individuals have committed at least $10,000 per year for five years to the first "pledge fund" of its type in the region.
In order for the fund to be effective, it must raise at least $2.5M and enlist the support of investors and local universities such as FIU, FAU, Nova and Miami. During New Idea Center's venture capital investors' events in February, the remaining commitments must be secured to enter into a binding agreement. These events are exclusively for accredited investors, individuals that meet the SEC's minimum wealth requirements, to network and share their deal flow. Dr. Alan Carsrud, from FIU's Center for Entrepreneurship and Family Business, and recently arrived from UCLA, will be this month's keynote speaker.

Zach Bell, co-founder of the angel fund and Professor of Entrepreneurship at the University of Miami, stated: "Entrepreneurship is the critical force behind innovation and new wealth creation. By creating a managed fund that addresses the early-stage funding gap inherent in new ventures, we can significantly 'raise the bar' for local commercialization opportunities by focusing our efforts on the creation and expansion of promising young firms."

"After the venture capitalists in Florida migrated to larger sized deals over the past two years, there is a great funding gap for early stage companies. We are willing to coordinate, without compensation, a structured fund for these first-round opportunities, as they are now attractively priced," stated Mick Lopez, CEO of New Idea Center. "Any interested investors that want to participate in this national trend can request an invitation via or call (305) 913 3185 ext 2462."


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