HIGH-RISK INVESTING
Weary of waiting for last year's high tech wunderkinds to turn a profit, venture capitalists are shutting off the cash. Time to buy T-bills? Not so fast, says Scott Peters, co-CEO of Angel Society, a hub for individual investors looking to fund startups. Impatience on Sand Hill Road, Peters says, means big opportunities for those willing to take on immense risk.
Whereas established angel resources like Garage.com and OffRoad Capital focus on brokering deals, AngelSociety concentrates on bringing investors together through a Web site (launched in September), a monthly magazine (Angel Advisor), and a conference (the Angel Society Forum, which debuted December 12 in New York). "Most angel rounds involve $500,000 to $2 million put up by a group," Peters explains. "We're providing the tools to help like-minded investors find one another."
But not everyone is qualified to be an angel. Because so many young companies fail, potentially devastating investors who can't afford losses, the SEC stipulates that individuals putting up money have either a net worth of $1 million or an annual income of $200,000 ($300,000 for married couples) over the past two years.
Given the risks, most observers insist that early-stage investing is strictly for pros. Ken Andersen, managing editor of VC newsletter VentureWire, notes that VC investment totals have declined since last spring's correction. "If you're part of a VC fund, that's the nature of the business," he says. "If you're an individual, it's harder to absorb such losses."
But consider the returns, says Robert J. Robinson, a professor at Harvard Business School. "History shows that angels earn 15 to 20 percent annually," he says. "That's the same as the venture community."
If the averages aren't staggering, individual cases often are. According to SEC filings posted on freedgar.com, Kleiner Perkins Caufield & Byers on June 11, 1996, bought $275,000 worth of Juniper Networks stock at $0.044 per share. As of mid-November 2000, the split-adjusted price had swelled to $188, and the same shares were worth $7 billion. "You shouldn't put all your eggs in one basket," Peters says, "but you owe it to yourself to get involved."
- Geoffrey James (geoffjames@aol.com)
Angel Society: www.angelsociety.com.
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