I have written quite extensively over the past several months about the lack of available funding sources for startups and early-stage businesses. In addition to the lack of lending from many of our banks, we have seen venture capital investors moving further up the scale, looking at more established, larger companies with more revenues and that are closer to an exit strategy, be that an IPO, a sale of the firm to a larger competitor, etc.
The gap that has been left by the absence of lenders and venture capital investors for startup and early-stage financing has largely been filled by angel investors. In this week’s column, I will provide some detail on the impact that our local, Central Coast angel investors have had and are having on our economy through the deals they have financed, and explain a bit about how angel investors identify the companies they want to fund.
First, the term “Angel Investor” comes from wealthy investors in the early 1800s that would swoop in (like a guardian angel) and save plays that were about to go bust. Many made substantial fortunes in the process. Today the term angel investor is used to describe a wealthy investor who is looking to make an equity or debt investment in a company directly, usually also offering advice, expertise, counseling, training, and in some cases direct management assistance. Angels are different from venture capital investors, which are typically a professional investor or group of investors who raise money from other investors, pool the funds, and then use that pool to make investments to achieve a high return for the pool.
One of the most prominent and innovative angel investor groups in our area is Maverick Angels (www.maverickangels.com), founded by John Dilts. What is unique about their approach is that they use a boot camp for entrepreneurs, which is a full day of training to help prospective funding candidates with the following:
- Make a Successful Investor Pitch
- Create an Effective Executive Summary
- Develop a High-Impact Slide Presentation
- Personally Align with Your Company Vision
- Understand the Playing Field with the Circle of Success™
- Leverage Resources for Growth with the Collaboration Spiral™
- Pressure-Test Your Plan --- Become a Dreamer, Realist and Critic
Jerry Knotts, the president of our local Santa Barbara Maverick Angels group, will be speaking about the key things angel investors look for when deciding whether to fund a new venture at my upcoming, free seminar on venture funding and development, to be held this coming Wednesday, March 3rd, at 6 p.m. at Handmade in Santa Barbara (www.handmadeinsb.com), at 1W. Canon Perdido. (To reserve your seat, please call 805.898.1400). Jerry states that Maverick not only looks at technology companies, but is also interested in all other startup and early-stage companies as well, unlike many of the other angel groups that strictly focus on tech. The reason for this focus is that angels are looking for high growth-high return investments, and technology companies tend to fit this bill perfectly.
One of the newest innovations from Maverick is their AngelLink™ site—a virtual angel investor network exclusive to Maverick Angels. AngelLink™ is the world's first online angel investor group which enables Maverick Angels members to access high-quality deals filtered by Maverick’s unique qualification process and to leverage collaborative mind share of their high-net-worth member investors.
Through the Maverick website, angel investors all over the world can access entrepreneur presentations from pre-screened companies looking for funding, vastly expanding the entrepreneur’s access to global sources of capital.
Companies funded by Tech Coast Angels, (www.techcoastangels.com) the largest angel network in the U.S., have received over $1 billion. One local company that they funded in 2005 was Make It Work, which has grown revenues fourfold and has increased their customer base from 3,000 to 20,000. Tech Coast has a local chapter for Santa Barbara and Westlake Village, and is very active in our market.
Most angel groups have an online application process for entrepreneurs, through which their business idea can be submitted for consideration. If the idea passes the first screen (or two), the entrepreneur will be asked to make a presentation to the group. Normally, about four or five entrepreneurs are chosen to present each month. In the case of Maverick, those that pass the first screens are required to attend the one-day entrepreneur boot camp before they can present. Presentations usually last about 20 minutes, with 10 minutes or so for questions.
My upcoming seminar will provide valuable information about the essential elements of a proper business plan. The entrepreneur would be well advised to have their business plan completed prior to submitting to angel groups. In fact, most of the information that the angel groups will require will come directly from the business plan.
One of the key areas of the business plan, and the first step in preparing to build a company, is market validation. Market validation, in simple terms, is proving that there is a viable market for the company’s product or service. Bill Benjamin, author of Successful Startups (www.venturecritical.com), will also speak at my seminar about market validation. A good business plan will include a complete market validation study, and angels will be much more interested in an idea if market validation has been successfully completed.
Besides seminars, like the one I am hosting this week, there are many other sources of information to help entrepreneurs link up with angel and other investors. One local source is the Santa Barbara Tech Brew, run by Alan Tratner, which has a Tech Brew Mega Mixer coming up on March 5th. This event is free, (follow this link for more info, or to sign-up: www.smallbizentrepcntr.org), and will be held in concert with the 3rd International Women’s Festival at Earl Warren Fairgrounds. Bill Benjamin and I will have a booth at this event, so come by and see us!
Alan also runs the Small Business Enterprise Center and Green2Gold (www.green2gold.org). Both organizations work to provide entrepreneurs with actionable information to help them achieve funding and build successful companies on the Central Coast.
The California Coast Venture Forum, (www.ccvf.org) of which Jerry Knotts is also president, has a stated mission of mentoring, advising and promoting growing companies in markets in California. The CCVF selects companies with sound business plans and helps them in their search for funding to grow through education, training and assistance with venture capital acquisition. For many years CCVF has focused on a technology corridor, encompassing the counties of San Luis Obispo, Santa Barbara, Ventura and northern Los Angeles.
There is no doubt that funding source for startups and early-stage companies have all but dried-up. Angels have stepped in to fill the gap left by banks and venture capital investors, and are providing a much needed source of capital to drive new business development. In addition, angels are not passive investors that just throw money at companies and then sit back and wait for a huge return. They are hands-on investors, that mentor, advise, support, and if needed, take an active role in the management of the ventures they support.
In the U.S., small businesses account for 70 percent of all new job creation. With unemployment running at 9.7 percent nationally, California’s at 10.6 percent, and Santa Barbara’s at 9.3 percent, we desperately need all the help we can get. At present, angel investors are, practically speaking, the only significant help we are getting, or will likely get for some time to come.
The net impact of this is that, if you are an entrepreneur looking for funding for a new or early-stage business, you will need to connect with angel investors. I hope my upcoming seminar will shed some light on the correct steps to take to successfully achieve funding for new ventures.
Next week’s column will address the best places to invest given the possibility of a perfect economic storm, as outlined in last week’s column.