Angels can make good things happen
We heard it again at the Chamber of Commerce annual meeting recently: “The Spokane region has the assets to become a national leader in the ‘innovation economy’ if we can learn to embrace a culture of entrepreneurism and risk.”
An “innovation economy” is one characterized by the rapid growth of high-wage jobs and distinguished by industries that are fueled by innovation and technology.
Considering how often we’ve heard this message from visiting experts, I continue to believe it’s possible — except for one missing piece of the puzzle. Our region lacks adequate early-stage, or “angel,” capital. This may be difficult for people to hear, but it’s a fact.
Pete Chase, the CEO of Purcell Systems, tells a great story about how in the early days of his company he struggled to get anyone to listen to him, let alone invest in Purcell. He concludes his story by describing how a local investor gave him $100,000 just as he was ready to leave town.
Purcell Systems, which employs nearly 100 people, recently attracted $16 million in venture capital, but unfortunately, it’s in the minority. For every Purcell Systems, 10 other companies either fail or leave the area because of a lack of funding.
Don’t get me wrong — I’m very bullish on the Spokane region. But having talent, innovation, and even later-stage funding doesn’t address the early-stage funding gap. Turning good ideas into strong, healthy companies requires time, business expertise and enough capital to develop products, hire employees, rent office space, and pay taxes.
I believe it’s time for a culture shift in our region.
The most common challenges entrepreneurs face are lack of business expertise and lack of start-up funding.
Connect Northwest, an INTEC program, provides expertise through its private-sector provider network. The early-stage funding issue is another matter. For most technology-based companies, the ability to attract conventional financing is nearly impossible. This is where angel investors come in.
The Center for Venture Research at the University of New Hampshire has developed a profile of angel investors. The average private investor is 47 years old, has annual income of $90,000 and a net worth of $750,000, is college-educated, has been self-employed and invests $37,000 per venture. Angels, unlike venture capitalists, aren’t part of a syndicate — they’re just individuals with money to invest.
Most angels invest close to home and rarely put in more than a few hundred thousand dollars.
Angel investment appears to be the largest source of external equity capital for small businesses. Nine out of 10 such investments are devoted to small, mostly start-up firms with fewer than 20 employees.
Those investors expect an average 26 percent annual return at the time they invest, and they believe that about one-third of their investments are likely to result in a substantial capital loss.
For the business seeking funding, the right angel investor can be the perfect first step in formal funding. Compared with the more stringent venture capital route, it usually takes an entrepreneur less time to obtain angel funds and angels usually expect a lower rate of return. The downside is finding the right balance of expert help without the angel taking charge. Structuring the relationship carefully is an important step in the process. This is where Connect Northwest steps in.
Connect Northwest is partnering with the Delta Angel Group and the WTC Angel Network to provide workshops, forums and introductions for individuals interested in angel investing. I encourage anyone interested in learning more about angel investing to attend one of these sessions. To learn more about Connect Northwest please go to www.connectnw.org.