Angel Investing

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In April 2007, I co-founded an organization called Hyde Park Angels. Our stated mission is to support entrepreneurs in the Midwest, but we all really got into it to make some money. The Chicago Tribune wrote an article on HPA last week. It is a lot of fun interacting with all kinds of entrepreneurial businesses. Together, we analyze and explore possibilities. Then, if we feel right about the valuation of the business, the team, and the market, we use our own capital to fund them.

What happens next? Well, if an angel organization is really good, it will utilize it’s network to help its “portfolio companies”. So far HPA has done that. Venture Capitalists will generally make a large investment and then get rid of the original management team. We look to support the original management team and give them advice on how to better run their business. It’s not an adversarial relationship, but a supportive one. Kind of like a coach and a player on the team.

In California, Boston, New York, they have several angel organizations. As a matter of fact, when you look at dollars invested, California does the lion’s share. Silicon Valley is fertile ground and angel groups like Band of Angels are very active. Midwest entrepreneurs have left the midwest for the coasts because it’s easier to get funding there. But, things are changing. There are other groups besides ours. Dennis Serio has a nice organization, and has done a lot to tie angel groups together to form a cohesive core. Pretty neat for an entrepreneur when they can access a larger network. It makes their capital raise more efficient. Laurence Hayward and Michael Gruber have Cornerstone Angels. They raised funds for Jiminy Chips, the best potato chip in the entire universe. The I2A fund is active. The Chicagoland Entrepreneurial Center (CEC) is working hard at entrepreneurship. So there is a little activity starting to form up.

Colleges and universities have answered the demand by creating centers where entrepreneurs can go and get information on starting and running their companies. DePaul has the Coleman Center(CEC), IIT has the Knapp Center. The University of Illinois in Champaign is in the process of setting up an entrepreneur lab. They also teach first class programs in how to be an entrepreneur.

HPA has partnered with the Polsky Center at the University of Chicago. This is very dynamic partnership for us. Really one of a kind for angel groups. The center is a really cool place for entrepreneurs and students. The Booth School at Chicago has a cutting edge curriculum to teach kids about how to be successful entrepreneurs. It’s full of academics that have done a lot of research, and actual entrepreneurs that cut their teeth in ventures. I cannot imagine a more stimulating, rich environment for a 20 something. Partnering with Polsky might have been one of the best decisions that HPA made.

How is HPA stuctured? It seems a mystery to the outside observer. You come up with an idea, and like magic, money appears! Our managing director is Sam Guren. HPA has recruited angels. We continue to recruit angels, so if you are interested, go to our website and drop us an email. We have Booth MBA students that work for us. This year, I think we had 400 applications for around 5 spots. We interview them. They are tested. Ira Weiss manages our associates. If you ever get a chance to meet anyone that has worked, or works for us you will be impressed. They are really cool people-and besides that, sharp. So that’s the basic part of our end, angels and associates there to help an entrepreneur. Now comes the fun part.

If you have an idea for a business, what do you do? The big idea gets submitted to HPA via our web site. Immediately, there is action. A student associate is assigned to the deal. That person calls the entrepreneur, helps them with submitting documents into the angelsoft.net software program we use to track deals. Then they do some industry analysis. They do some checking to make sure the deal fits HPA parameters. Then, the deal goes a Screening Committee that is made up of actual angels. These guys delve into the deal deeper along with the student and decide Yay or Nay as to whether to proceed. Next, the deal gets further burnishing and discussing and investigating. At every step of the way, there is a chance for the deal to be tabled, or rejected. However, as it goes further and further through the process, the probability that the deal sees funding goes up. During this process, we have small groups of focused investors outside the screening committee that might take a peek at a few deals to add information and gauge interest. This will change the course of a lot of deals.

Finally a couple of weeks before our quarterly meeting, the Screening Committee decides which deals are good enough to present to the entire community. Then we have our meeting. Nervous entrepreneurs present their company to seasoned and sometimes dispassionate angels. It’s their own money they are investing-so they look at everything pretty closely! If there are enough interested people, then they form an ad hoc group and do some really hard investigation of the company. Angel groups call this “due diligence”. If they feel good about the company, they negotiate an investment. It’s up to the small group, and the entrepreneur. Sometimes it’s an equity position, sometimes debt, sometimes both. Everything is flexible. Boom, an investment is made and the company is off and running.

HPA doesn’t get a kickback, or a percent of the capital raise. All the money goes into the business. HPA wants to make money because the entrepreneur makes money-not on the back of the entrepreneur like a sharecropper. Many angel groups do this. HPA is funded by dues, and by sponsorship. We really need local businesses to sponsor us. Some like KPMG, Molex, Geneva Investment Management, Horwood, Marcus and Berk, and Reed Smith have generously helped us out. We could use a few more. If you are part of the midwestern business community, you ought to look at sponsoring us. It gives you a chance to have personal interaction with companies and angels, and it gives us all a chance to build a thriving entrepreneurial business climate that lifts the economic activity here. That helps everyone.

Just to let you know, the investment in any single company that someone might make ranges from as little as $10,000 to maybe $100,000. But, because there are a lot of investors, there is a lot of firepower. Each angel makes their own decision how much to invest on their own. You also invest at the same terms as everyone else. Google was started with a $100,000 angel investment. You don’t have to invest a million dollars to be an angel. Plus, when the deal works out, you get to see the gleam in an entrepreneur’s eye, and you get to deposit your investment plus a little more in your bank account. That’s the best kind of community service.
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  • Michael Gibbs

    Interesting information. I wonder if we could set up similar groups in London and Singapore, affiliated with Chicago Booth?

  • Michael Gibbs

    Interesting information. I wonder if we could set up similar groups in London and Singapore, affiliated with Chicago Booth?

  • Michael Gibbs

    Interesting information. I wonder if we could set up similar groups in London and Singapore, affiliated with Chicago Booth?

  • Thank you for the further insight into our community! As someone trying to connect startups with advisors and investors, I look forward to being a first-time attendee at your next event.

  • Thank you for the further insight into our community! As someone trying to connect startups with advisors and investors, I look forward to being a first-time attendee at your next event.

  • Thank you for the further insight into our community! As someone trying to connect startups with advisors and investors, I look forward to being a first-time attendee at your next event.