Executive Summary: Investors with wings come in all sizes, shapes, bank account sizes and, as of lately, locations. The new kid on the block in this region is home-grown.by SUSAN AYERS
For entrepreneurs searching for financing, the thought of an angel investor is enchanting. But an entrepreneur who links arms with an angel must be prepared to be partners with a source who will have a high degree of interest in ROI, his raison d’etre.
Being an entrepreneur with a start-up company is not for the faint of heart. Being an angel investor is an exercise in taking on the entrepreneur’s risk. The pressure for the company to perform can be intense. In return for their investment in companies, angels receive an equity stake in the company. But for many angels in this region of Virginia, it isn’t all about the money and that’s where remaining true to their name comes into account.
Many angels are successful former or current entrepreneurs who genuinely want to help entrepreneurs get their businesses, off the ground as well as to benefit the overall region where they live. They bring a depth and breadth of knowledge to the new entrepreneurs. Securing angel funding can consume great chunks of time. Angel investors are taking significant risks on a relatively unproven ventures and it is understandable that they like to carefully examine the business from all angles. Angels research the business to determine whether the investment should be made. This due diligence includes looking at a wide spectrum of elements including the people, products, projected sales, financial and legal issues.
“It’s getting more and more difficult to get early stage funding,” says David Poteet of Nomad Mobile Guides in Blacksburg. “Some investors write a check with no involvement and others interested in the company also do mentoring.”
“A lot of things can be overcome, but you must have good people in the deal,” says attorney Mike Drzal of LeClair Ryan in Blacksburg. “[You need] people highly motivated with a tremendous work ethic, flexible to make adjustments, and honest and forthcoming regarding competitive challenges. Angel investors are looking for good people.”
Angel investors do not have to be accredited investors as designated by the Securities and Exchange Commission (SEC). Still, most of the money coming from angel investors comes from accredited investors. Accredited investors—as defined by the SEC—have income and asset requirements that must be met. Angels are filling a void of sorts that began occurring when many venture capital funds were no longer available for the new companies.
“Angels are having to fund bigger and bigger rounds [because] many venture capital funds, particularly in our region, are moving downstream to where there’s less risk such,” says Attorney Ken Maready of Hutchison Law Group in Blacksburg. “[That includes] companies with actual recurring revenue, which is not typical in seed and early-stage startups.”
One of the ways that a region can benefit from new small businesses is job growth. According to a recent Kauffman Report, businesses less than five years old account for the creation of two-thirds of total new jobs. In 2007, there were 12 million new jobs in the United States with young businesses responsible for 8 million of those.
In our region, there have been several successful technology startups including—but certainly not limited to—Luna Innovations, WebMail (MailTrust), ADMMicro, TechLab, Meridium, Optical Cable, VTLS, Pixel Optics and Synchrony.
“Small homegrown businesses and entrepreneurs play an important role in our local economy,” says Sam English of CIE Partners in Roanoke. “Smart entrepreneurial people are attracted to the area and an infrastructure is established that supports creativity and risk-taking. An entrepreneurial economy benefits on multiple levels: creating profitable businesses in the region; [creating] quality jobs; [improving] local wealth for entrepreneurs and investors; and strengthening the community with additional tax revenue [and] philanthropy, [creating] business leaders and [generating] investments into other businesses.”
Until recently, angels have been difficult to identify, mostly because individual angels wanted a low profile for obvious reasons. Now, many angels are forming groups to become more visible to people with ideas and the groups are becoming more organized. That said, there are still many angels who quietly invest individually.
“The 460 Angels Group is more of an idea of the 460 Capital Partners,” says Bob Summers, its director. “We started working on it three years ago. The group is meant to be regional—Southwest Virginia. The initiative kicked off last October to the network people. The advantage of the group is [that individuals are] pulling together. I anticipated getting 10 accredited investors the first year. We have 30 accredited investors between Roanoke and Blacksburg.” “We have a lot of work to do. We need our angels being more sophisticated in terms of strategy to be like other regions. It’s a work in progress. “It’s all about networking and matching the right company with the right angel investor.”
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There has been a tremendous amount of growth over the last one to two years on the angel investor scene in Blacksburg, the New River Valley and Roanoke area. On one side of the equation, the angel community appears to be coming together and on the other side at the same time; there is considerable guidance available to entrepreneurs along the lines of how to present to angels, the process as a whole, how deals can be structured and what an angel-backed company looks like. As a result, there are opportunities galore.
This guide will help you start your search.
Virginia Tech Corporate Research Center (CRC) is home to more than 100 companies engaged in leading-edge research in diverse areas of technology. The Center’s mission is to develop a growing, prestigious research park for high-technology companies. Concurrently, the CRC will, in collaboration with the university, advance the research, educational, and technology transfer missions of Virginia Tech (VT). CRC currently has 27 completed buildings totaling 956,000 square feet housing 2,200 employees on 120 acres of land. Total build-out is planned to be another 28 buildings totaling 950,000 square feet housing 3,000 employees in Phase II. CRC is a for-profit wholly owned, private subsidiary of the Virginia Tech Foundation, and is, therefore, not a state entity.
VT Knowledge Works is a regional business acceleration center serving technology-based enterprises at all stages of the corporate lifecycle. With conference and incubation facilities located in the Virginia Tech Corporate Research Center, VT Knowledge Works encourages and supports entrepreneurs, executives, and investors as they plan, launch and grow companies to financial independence.
VT KnowledgeWorks Entrepreneurship Summit is an annual two-day comprehensive workshop custom designed for prospective company founders, entrepreneurs launching or re-vamping a business, growing companies seeking expansion capital, and individuals interested in investing in early-stage companies. Originating in April 2009, the Summit includes business concept competitions, open angel forum and educational seminars.
The NewVa Corridor Technology Council (NCTC) is a non-profit member-driven association of businesses and organizations in the greater NewVa Region encompassing Roanoke and Blacksburg, VA and the surrounding counties for the purpose of driving prosperity and working together to promote the growth and success of the region’s technology sector. Access to Capital Committee was established in 2009 by NCTC to increase communication between technology firms that need funding and investors willing to fund them.
The Angel Capital Association (ACA) is North America’s professional alliance of angel groups. The association brings together many of the angel organizations in the United States and Canada to share best practices and collaboration opportunities. ACA serves as the public policy voice of the American angel community.
460 Angels is a seed and early-stage angel investor group facilitated by the NCTC Access to Capital Committee. The group just kicked off last October to the network people and focuses on funding and coaching hi-tech entrepreneurs with scalable business models based in the New River Valley and Roanoke region of Virginia. This group is seeking technology based product companies, which can scale to a global marketplace. The group’s members are experienced in engineering, software, finance and management. The 460 Angels follows the ACA’s Best Practices.
Pitch & Polish Clinics that help tech-related companies prepare for raising Angel capital are hosted monthly by the NCTC Access to Capital Committee. The entrepreneur is allowed 10 minutes to pitch an idea/company and receives feedback on how to improve from a seasoned panel consisting of four to eight panelists. The entire session takes approximately 30 minutes. Additional representatives from the entrepreneur’s company may also attend, but otherwise this is a private session between the entrepreneur and the panel of advisors. This opportunity is open to any tech-related company seeking early stage investment and is the first step to accessing capital. Pitch & Polish clinics are held monthly at the Virginia Tech Corporate Research Center. The first clinic was held in May 2010.
DayOne Ventures is a seed stage investment and mentoring program for technology-based startups, funded and operated by experienced, successful entrepreneurs who are also angel investors. The entrepreneurs are experienced in both building and selling technology businesses. The program launched on March 12, 2010 and is housed at the VT Knowledge Works Business Acceleration Center, located in the Virginia Tech Corporate Research Center in Blacksburg, Virginia, home of Virginia Tech. Each spring, up to three early stage enterprises are selected through a competitive evaluation process. Those winning teams selected receive benefits including up to a $16,000 stipend to cover personal and business expenses in relation to participation in the program, free furnished office space, Internet access and hosting, free company formation and legal documents, and free brand development and logo. Accomplished entrepreneurs work closely with the teams for three months to maximize the opportunity in each start-up and remove unnecessary risks. The program normally begins in late May and concludes in late August. Each firm then has the opportunity to present to potential investors via a demo day event. In exchange for the package of benefits provided, DayOne Ventures receives an equity stake in the emerging enterprise.
Virginia Active Angel Network (VAAN) is a professionally managed and member-led group of accredited investors that meet monthly in a dinner model in Charlottesville. Founded in 2005, VAAN has members from Southwest Virginia to Northern Virginia and to New York City and Georgia who participate either by driving to the Charlottesville dinner or through on-line access. In this model, VAAN allows the presenters to still reach a large investing membership while reducing the number of members that must travel to local dinners (as was the model the first four years of VAAN). VAAN considers opportunities to provide funding and mentor capital to early and seed stage ventures primarily in the central and southern Virginia region, and the greater region, including Maryland, Washington DC, North Carolina, Kentucky and West Virginia. VAAN also syndicates opportunities with other Angel Capital Association angel groups.
CIE Partners is an independent Roanoke-based organization promoting innovation and assisting entrepreneurs, small businesses, and nonprofit organizations in the western region of Virginia. The organization began in 2006 as the Center for Innovation and entrepreneurship with the mission of assisting inventors and entrepreneurs. Building on that success, in 2008, the organization added staff, expanded its offerings to include services to nonprofit organizations and changed its name to CIE Partners to reflect its expanded capabilities.
From Charlottesville to Roanoke to Blacksburg, CIE Partners has an available network of resources to accelerate the development of successful businesses and to enhance the operation of nonprofits. The organization provides advice and consultation, works side-by-side with its clients to actively advance their interests. Its expertise is tailored to meet different client needs as the organization assists in designing and carrying out feasibility, financing, and follow-through activities. CIE Partners specializes in working with inventors at the idea stage, entrepreneurs in the start-up phase, and nonprofits at any point of development.
Hutchison Law Group Angel Investment Education Series offers a series of workshops and seminars for prospective angel investors and for entrepreneurs seeking angel investment funding. Founded in 1996, Hutchison Law Group expanded into Virginia with the opening of an office in Blacksburg in January 2010.
LeClairRyan SCOUT (Startup Companies Originating Unique Technology) Award recognizes and assists an entrepreneur or emerging business with high growth potential. The recipient may receive up to $15,000 in complimentary legal services over a 12-month period. In order to be eligible for consideration, applicants must have a commercially viable business model based on proprietary technology or innovations. A cogent business plan demonstrating high growth potential is required. Companies seeking or preparing to seek angel or venture capital financing are eligible. This is the second year of the SCOUT award. Submissions will be accepted until November 1, 2010. The winner will be determined by the leadership team of LeClairRyan’s Venture Capital Practice, along with outside assistance, and will be announced on December 1, 2010.
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