To find financing, go to where the 'angels' flock
By Jennie L. Phipps • Bankrate.com

Sandy Weinberg was a struggling entrepreneur with a good idea for software that made pacemakers work better.

He was consulting by day and building his new venture by night when he met a retired biochemist at a venture capital forum. The man liked Weinberg's vision, and he wanted to help a young businessman succeed.

That biochemist became Weinberg's angel, investing $650,000. His capital got Weinberg's company up and running. He also provided know-how. "That's the best combination that anyone can give you," Weinberg says.

Venture capital clubs, associations, forums and organized angel networks are all permutations of the same thing -- informal groups of private investors who meet to investigate entrepreneurial opportunities in which members can invest singly or as a syndicate.

Angel investors appear to be a big factor in small business financing, but it's hard to put a dollar figure on the amount of money involved or the extent of what's available, since almost all of these deals are private.

The average 'angel'
Statistics from the Center for Venture Research at the University of New Hampshire indicate that the average private investor is about 50 years old, has a net worth of at least $1 million and has been an entrepreneur. The center says most angels invest in companies no further than 50 miles from home. They expect at least a 25 percent return on their money, but they acknowledge that one-third of their investments are likely to be substantial losers.

Weinberg's experience with angels could be typical. After 10 years in business, he sold his company for more than $6 million and turned into an angel himself. He now works full-time teaching others as the Entreprenuer-in-Residence at Muhlenberg College in Allentown, Pa. He also heads LOAN, the Loosely Organized Angel Network.

Members of LOAN are mostly Lehigh Valley business people with an interest in startups and the means to make significant investments in them. Membership is by invitation, as are opportunities to present ideas to the elite group. In LOAN's first six months, members financed three projects for a total investment of $4 million.

"Being an angel is often lucrative, but love is a big part of it and also a desire to grow the opportunities in the Lehigh Valley," Weinberg says.

Two-minute presentation
At the monthly meetings of a similar organization, the Missouri Venture Forum with members in the St. Louis and Kansas City regions, three entrepreneurs are given two minutes to explain their ideas and how much money they're looking for. They also get a write-up in the newsletter.

In an average year, a half-dozen ventures are funded as a direct result of presentations, says Tom W. Siegel, vice president of Advantage Capital Partners and past president of the forum.

The format has been so successful that Siegel is establishing a national network of similar organizations, the Association of Venture Forums, to allow members to refer ideas that don't quite fit the Missouri forum's scope. Siegel, who successfully started up a handful of businesses -- including a computer company and a publishing house -- before becoming a venture capitalist, also anticipates that the national forum will refer entrepreneurs to appropriate local organizations.

All angels are choosy about who gets their attention, but Texas Angel Investors are downright picky. This group, which meets monthly in Austin, the high-tech capital of the Southwest, invests only in ventures related to computer software, hardware and telecommunications. At evening meetings held at one of the city's most prestigious country clubs, three companies get 10 minutes each to present their plans. But that's almost an afterthought, considering what has gone before.

To get an opportunity to present, entrepreneurs must fill out a formal application, including a written proposal. An initial steering committee does the first cut. Entrepreneurs who make it are assigned to a team of groomers -- lawyers, accountants, bankers, etc. -- who help hone the entrepreneur's application and presentation. There's even a dress rehearsal before the hopeful entrepreneurs are allowed to present to 60 or 70 of Texas' heaviest high-tech hitters.

Making a deal over coffee
"It's very nerve-wracking," says Paul Myers, assistant director of The Capital Network, a nonprofit organization that provides entrepreneurial ventures with training and access to investors. After the formal part of the meeting, there's dessert and coffee. A lot of deals are initiated in that informal setting. Myers says typical investments are in the $500,000 to $1.5 million range, and the investor is usually very interested in being involved in the business.

There are increasing numbers of formal and informal angel groups, but finding them isn't a matter of looking in the phone book. The best way is by asking people who are likely to know the local scene. With any luck, they'll also steer you away from bad deals.

Lots of angel networks charge a presentation fee or require that entrepreneurs join an affiliate organization and pay dues. But if the amount of money is greater than $500, consider whether you'll get enough opportunity for your money.

Here are several good places to look for angel networks:

• Universities -- Angel investor groups are sometimes affiliated with business schools or at least like to hang out there because they generate new business activity.
• The Small Business Administration or the local development authority -- If their administrators are really tied into the community, they should know where the money is.
• Business incubators -- If there is one in your community, talk to its executive director. The Bankrate.com small business link library includes an extensive list of business incubators.
• The Rotary and/or the Chamber of Commerce -- In many communities, all the movers and shakers belong to one or both. Some even have their own angel groups.
• Your accountant or your banker -- If you've chosen the right people with business experience, they should know.
• Brokers and lawyers -- These professionals might be tuned in as well.
• Trade associations -- If you belong to one, ask for guidance.
• Professional venture capitalists -- Even if they're not willing to give you money, they may give you free advice.

Jennie L. Phipps is a contributing editor based in Michigan

-- Updated: May 3, 2002