Start-Up Firms Often Saved By ‘Angels’
You won’t find harps or halos hanging around the boardroom of Branchout.com, the New York City-based web site founded a year ago, but you will find a few angels.
Founder David Ronick says his life changed for the best when private investors, called angels, opened the pearly gates to his entrepreneurial dreams.
“We started with our own money from family and friends, but as we got down the path, we tapped out our personal network and needed more capital,” said Ronick, relating a common experience among small-business owners.
Angel investors are wealthy individuals looking for high-growth businesses to invest in. The money usually comes with strings attached - business owners are expected to give up equity in the business or offer their angel a seat on the board. But since angels prefer to invest in their own industries, they usually provide sage advice and counsel along with the cash. Some angels prefer not to deal directly with entrepreneurs, so they invest in venture capital funds that target start-up businesses.
Ronick’s company needed about $200,000 to operate www.branchout.com, a Web site that offers users a way to network with others of similar professional and personal interests. Ronick originally wanted to set up an online college alumni network but decided to change direction.
“We were still considered a start-up because we changed our strategy and started over in a way,” said Ronick.
Ronick began shopping his company to groups of angel investors belonging to the New York New Media Association. In the summer of 1997, he presented his business plan to a panel of 12 investors at the organization’s angel breakfast. That netted one investor.
Next, he paid $500 for a three-month posting with Amis Ventures, a Washington, D.C.-based networking service that introduces angel investors to entrepreneurs. Amis was founded in May 1998 by David Amis, a former college classmate of Ronick’s.
Angels pay an annual $500 fee to subscribe to the company’s reports. Amis screens business plans and creates an investor-focused, two-page summary of each opportunity. Ronick listed his company with the Amis Ventures network and in two months had secured $200,000 from a group of four private investors.
“The market for investing in start-up businesses is emerging and organizing itself because there is such a large demand,” said Jen Amis, project coordinator for the company. Amis said the company was founded specifically to address the gap in available equity funding for small companies.
“The equity gap for start-ups is creating this market,” she said. (Amis can be reached at (202) 986-5242 or online at: www.amisventures.com.)
Most major cities have several organizations designed to match angels with deserving new businesses.
“These (angel) groups are forming really rapidly,” said Karen Zehring, founder of New York-based Source Capital Network (www.sourcecapitalnet.com), an online matchmaking service for angels and entrepreneurs.
“There are more angels looking at alternatives to the stock market because it is so volatile,” said Zehring. “Interest rates are making long-term investing in high-growth companies more attractive.” While entrepreneurs, who pay between $700 and $1,000 for a listing, must meet certain standards to be accepted into the network, Source Capital also carefully screens its angels. “We heard of entrepreneurs getting calls from people who were not investors but who were soliciting them for professional services,” Zehring said. To become a Source Capital member, you must be nominated by an existing member and have made an angel investment of at least $25,000 in the past 12 months. (To reach Source Capital call: (212) 974-7222.)
If angel investments aren’t right for you, there are venture capital funds that prefer to invest in small, start-up companies.
To find a fund in your area, contact organizations like the Small Business Administration’s Service Corps of Retired Executives (SCORE) or the Small Business Development Center in your area.