For entrepreneurs outside of Silicon Valley, the hunt for angel investors - people who've already gotten rich and are looking to lend a generous hand to the next generation of would-be millionaires - can seem like trying to find a nimbus in a golden haystack. But new resources online promise to attract the heavenly financiers to companies in which their capital will be cherished - and might grow.
"Especially on the East Coast, the [network of angel investors] is very disorganized, and it hasn't coalesced," said Mark Tribe, CEO of small New York start-up StockObjects. Though his company managed to secure US$500,000 from private investors, tracking down "HNW"s (High-Net Worth individuals) to invest under a million dollars, took some work - and luck. "I met one guy at a dinner party in Boston, another at the International Art Symposium at Rotterdam...." he said. "It's really about just asking people we know."
But when the network of kith and kin becomes exhausted, the entrepreneur's question can become more desperate: Where do angels live and how do I meet one? The seed-capital financing system for companies "operates like it was 200 years ago," argued Vicki Rellas, CEO of the new online financing service PriCap. "If you were a fisherman and you needed money, you would go to the banker and ask for money," said Rellas. "But if you didn't know the people ... or you're living in Alabama, where there is a limited pool of investors, things get complicated."
To ease such difficulties for entrepreneurs far from the Valley's pearly gates, PriCap, which launched last month, and the publicly funded ACE-Net, which was created in April by the University of New Hampshire's Center for Venture Research, have formed fledgling efforts to unite angels and start-ups over the Net.
Both services are built on double-blind databases of young company profiles. Angels can search for potential companies to invest in, by geographic region, type of business, amount of previous capital raised, and number of other investors involved. Interested investors can then request the business proposal straight from the company - or in PriCap's case, meet with the client in a secure chat room. Not surprisingly, angels register free at PriCap, but businesses pay $500 for six months of participation - more than 100 companies and 30 angels have already signed up. ACE-Net is free, but both angels and companies must pay to register with local venture groups first.
The advantage of such services, Rellas says, is that investors can find companies they would never come across in their regular course of business. "They want to diversify into many areas," she explained, and the services help break down the barriers - geographic and otherwise - between visionaries who need money and those who have already made it. To that end, PriCap has worked to create an extensive "backbone" of idea-incubators, linking business-school graduates at the University of Minnesota, the University of Iowa, and the University of Gainsville, Florida, among others.
Funded two years ago by a low six-figure grant from the Small Business Administration, ACE-Net focuses more on attracting first-time investors, or "virgin angels," through regional venture-capital groups, said William Wetzel, the director emeritus of the center. ACE-Net uses eight local hubs, like MIT's Technology Capital Network and the Ktech group in Kansas City, to screen participating businesses and investors. The system works like a "dating service, essentially," said Wetzel.
"If you look at the number of self-made mega-millionaires, 1 in 10 is now actively bankrolling early stage companies," he said. "By tapping into the other 9 out of 10 ... it would do great things for emerging companies."
ACE-Net and PriCap have yet to really show their worth. Because angels can contact the companies directly, it's impossible for PriCap and ACE-Net to track their success stories, said Wetzel. "This is a two- or three-year project - we're trying to create a whole new equity market," he added. By 2000, Wetzel hopes ACE-Net will have created "healthy regional nodes" for angels, with the public funds it receives. "We'd better have something to show for it," he added.
In the meantime, ACE-Net and PriCap remain unproven - while angel investing is booming. According to the Center for Venture Research, such private investing pumps between $10 billion to $20 billion into businesses yearly, compared to the $5 billion to $8 billion invested by venture-capital groups like Gabelli Multimedia or Kleiner, Perkins, Caulfield & Byers. More importantly, their funds seed between 30,000 and 40,000 businesses, with an average investment of half a million dollars - an amount many venture capitalists would find too small to be worth their time.
PriCap and ACE-Net already have competition in the form of broad online databases and profiles of businesses looking for funding. In fact, the Net itself can provide much of the necessary information about a company.
"I can find out who they are, what their competition is [on the Net]," said Tim Draper of the venture group Draper, Fisher, Jurvetson, which provides seed capital. "[Private databases] don't add any value." Moreover, the services may be too slow to be useful. "Quality deals don't find their way to a database," Draper added. "They get snapped up."
