Angels Give Fledgling Firms A Lift

February 21, 2005
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GRAND RAPIDS — West Michigan has its own band of Angels, and they appear ready and willing to invest their financial, intellectual and networking capital to help local start-ups and small, growing companies succeed.

Four angel investors representing Grand Angels and DaVinci Capital made an appearance at Grand Valley State University's Pew campus recently to discuss what angel investors look for in the entrepreneurs seeking their financial backing.

Grand Angels founding director Craig Hall kicked off the discussion by pointing out the differences between angel bands and venture capital companies.

Only one in 1,000 start-ups receive early stage funding from venture capital companies, and only 1 in 10,000 go public, he said.

"That's an interesting number, so if you're an entrepreneur thinking that's where your check out is, you might think twice about what the odds are."

The goal of a venture capital (VC) firm is straightforward — to make money — and they're willing to invest big bucks to do it. They look for investments of no less than $2 million, typically invest $5 million or more, and are most interested in the later stage deals, Hall explained. Presently, venture capital dollars are going to the software, biotech and medical device companies, Hall said.

"There were six deals done in Michigan in the last quarter and none of them were here. That's typical, unfortunately."

There is a relatively new venture fund out of Kalamazoo that's involved in the region, but there are not a lot of venture capital players in the state. The ones that are here are located in cities like Ann Arbor and Birmingham. Most of them don't play in Michigan and certainly don't play in West Michigan, Hall said.

Angels, on the other hand, typically invest amounts of $250,000 to $2 million in a new venture. Their main objective, too, is return on investment, but angels are more hands-on. They prefer to roll up their sleeves and get involved with the young companies they back. They like to share their business acumen and serve as mentors.

Angels are wealthy, accredited investors who are entrepreneurs in their own right; they've "been there, done that" in terms of building a business — or several — from scratch and know what it takes, Hall explained. They typically want to work with entrepreneurs in the same industry or field in which they have the expertise.

Though angel investments are smaller than those of VCs, the total annual dollar investment in U.S. companies is the same for both — $30 billion.

Members of "angel bands" like Grand Angels seek investments they think will produce jobs, revenues and economic growth in their communities. Thus far, the group has funded two companies and has many more in the pipeline.

Charles C. Stoddard, former Grand Bank founder and CEO, established Grand Angels in January 2004 with the intention of giving young growing companies in West Michigan a financial boost. Grand Angels founders include Jim Brooks, Patrick Gaughan, Jim Heynen, Mike Jandernoa and Fred Keller.

DaVinci Capital helps emerging and growing companies develop funding sources and prepare for their Grand Angels presentations.

Bill Kleven, former president of Huntington Bank's Michigan operation, founded DaVinci Capital in 2002 after 24 years in the financial services industry. His partners in the private equity investment group are David Hooker and Michael Whalen.

Hall explained that Angels seek out entrepreneurs that are committed to a "vision" and willing to pursue it full time.

"It cannot be a part time endeavor. If you expect to get money from our group, we expect you to have a commitment, too," he said.

Angels also insist that the entrepreneur have a management team. Outside advisers are crucial, he said, and it doesn't hurt to have a few wizened "gray hairs" on the team.

"A band of angels will force you to have outside advisers because it will make a difference in the success of the company to have an objective, outside look at what you're doing."

What makes a winning presentation as far as angels are concerned?

An entrepreneur has to be able to articulate his "great idea," Hall said. Angels want to know what it will take to acquire a customer and how much it will cost. What's the exit strategy?

"We want to see the big picture and grasp it within 30 seconds," he said. "We want to see the passion. No one is going to invest in you if you don't have the passion to make it happen."

An angel's most important resource is his time, said Hooker, a Grand Angel and DaVinci Capital partner. That's the reason presentations are limited to 15 minutes. So don't wait until half way through the presentation to get to the meat of the matter.

Pre-presentation coaching is really important, too, Hall added.

"Get a group of peers together or people who know something about the industry and have some understanding about the problem you're trying to solve. Get some objective feedback from them."

David Hathaway, a Grand Angels executive board member, said Grand Angels prides itself on having a broader scope than most angel bands. It will consider ventures in a wide range of industries, but like other angel bands, it typically won't get involved with a "lifestyle" company like a restaurant, he said.

Hooker said an angel investor usually wants to see a return on his investment in five to seven years and shoots for a 30 percent return.       

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