PRESS
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 angelsummit.org and nasvf.org.
If
you're interested, there are a few angel funds raising money,
including the Mid-Atlantic Group Angel Fund cstarr@ipphila.com),
Nashville Capital Network(www.nashvillecapital.com) and South
Florida Angel fund (www.newideacenter.com). 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 http://www.NewIdeaCenter.com
or call (305) 913 3185 ext 2462."