Angel Investors Narrow Their Focus
Bill Warner Sunday, September 12, 2010
As you know, the entrepreneur’s “Valley of Death” is getting wider as the pressures on our economy move many private investors to lower risk venture investments. As they did early this decade, both VC’s and formal angel organizations are moving to more mature companies, widening the valley that is between where entrepreneurs are and where they need to be in order to find money to get their businesses launched.
The Valley Widens
In the late 90’s, entrepreneurs could get funding from venture capital organizations for start-ups. However, that produced a bubble of companies that were not very viable and most of them failed when the bubble burst in 2001 and 2002. In that same timeframe, formal angel organizations moved from providing start-up seed funding to start-up launch funding, focusing instead on companies that were nearly ready to go to market. The result of this was a large void of available funding for companies that were just getting started. I call it “grant land,” where the primary source of funding is public and private grants for feasibility assessment, research and development.
Well, it appears to be happening again. Venture capital firms are struggling for their very existence, as their model is changing to look more like investment bankers, loan operations, or small private equity funds, all driven by the near disappearance of the IPO. Driven by the uncertainty of the economy, private investors within formal angel organizations have become much more cautious as their managing partners move their investment preferences to companies that are approaching predictable profitability. These investors have been hurt badly by the economic downturn and many are moving to much lower risk investments. This further widens the Valley of Death, leaving entrepreneurs with an even greater period of time between their company’s inception and when they can even be considered by angel organizations.
The Reemergence of Seed Financing
To the rescue is coming the reemergence of the seed fund. Over the last couple of years, the NC Capital Highway project, sponsored by the NC Biotechnology Center and the NC Small Business Technology Development Center has been fostering the creation of seed funds throughout North Carolina, including one in the Research Triangle Park area called the Inception Micro Angel Fund (IMAF-RTP).
IMAF-RTP and the other IMAF funds are trying to narrow the Valley of Death by forming a new private equity fund that invests in startup companies at the seed level of maturity. This is at the point in time when they are still completing their proof of concept and formulating their marketing and sales plans; but are able to explain and verify a strong business model.
The Narrowing Focus
As with the original IMAF fund in Winston Salem, and the other IMAF funds that are emerging in Charlotte, Asheville, Greenville and Wilmington, IMAF-RTP is trying to narrow the focus on the kinds of companies it will invest in. These funds are much smaller than formal angel funds and will be the first investors in a company. They are looking for companies that will not need a lot of capital in order to become sustainable growth businesses. Finally, they will favor companies that have the possibility of exiting in less than five years.
Since these funds usually do not make subsequent investments in their portfolio companies, they are looking for the potential of substantial returns when they evaluate the companies in which they might invest.
Attracting New Investors
Many of the IMAF funds are still raising capital and are also looking for new investors. Angel investors are finding this a way to continue their interest in angel investing at a much lower investment cost, even though at higher risk. For new investors, it is less expensive than formal angel groups while providing a broadly diversified investment portfolio.
Filed Under: Angel Investment, Financing a Company, Managing Business Financials, Business Strategy and Planning
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.
Different people all over the world get the mortgage loans from various banks, just because that is fast and easy.
