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Finding Angel Investors Is About Who You Know

May 03, 2000|JUAN HOVEY

An angel investor group is forming in Pasadena, and if you're an entrepreneur struggling to figure out how to get in front of people with money, you can probably find some useful lessons in how this group sees the world.

As of yet, the group has no name, no phone number and no office space, so don't go looking for it in the Yellow Pages. Its members--a dozen or so individuals with long track records as angel investors--began meeting about a year ago, and they're still unsure how, where, when and under what circumstances they will invest as a group. They have made no investments so far, although, as an exercise in probing the strengths of the members of the group and plotting strategy they have some proposals under study.

In short, like many other angel investor groups, this one flies under the radar, so for the entrepreneur with a good idea and no money the first questions that come to mind are: What's the good news here? How do you get in front of people you can't find?

To find the answers, start with the most important fact about most angel investor groups: They don't want to hear from you. They don't want you to call them or fax them your business plan or stop them on the street or barrage them with e-mail.

They want to hear about you from other people--your attorney, your accountant, your banker, maybe a business acquaintance or another angel. That is, someone whose judgment they can trust and who can vouch for you and your idea.

They want you to get to them, in short, by networking.

Why? Angels care just as much about your connections as about your idea because your connections say important things about your idea. Indeed, the Pasadena angels consider good connections so important that they are toying with the idea of asking all entrepreneurs who seek the group's help to fill out a short questionnaire probing their connections even before they submit an executive summary of their business plan, much less the plan itself.

"We're still defining our processes," says John Feeney, a longtime Southern California angel investor and one of the organizers of the Pasadena group. "We expect to have to see 25, maybe as many as 50 plans a month to get to the one or two worthy of real consideration, and we need ways to learn the key things about the entrepreneur and the idea rapidly.

"We want to know about the character of the entrepreneur and the business idea too. We need to see the connections behind the entrepreneur right away--the attorney, the accountant and so on--because that will tell us a lot about how serious the idea is," Feeney says.

If the group does end up using a questionnaire, it won't be alone; angel investor groups everywhere use similar filters as a matter of routine, although not all go so far to make the process formal.

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This does not mean that the entrepreneur with a half-formed plan stands no chance of getting the backing of the Pasadena group. Like other angel groups, Feeney says, his expects to do a lot of hand holding with entrepreneurs, helping them polish their business plans and build their organizations with solid financing and professional management.

Like other angel investor groups, the Pasadena group intends to limit itself geographically, working with entrepreneurs only in the San Gabriel Valley, and maybe not all of that, Feeney says. It will probably limit its investments to start-ups engaging in business-to-business enterprises because that's what the San Gabriel Valley, fertilized as it is by Caltech and the Jet Propulsion Laboratory, seems to give rise to, Feeney adds.

"There's a tremendous demand for seed money for start-ups in these areas," Feeney says. "Pasadena is a small town with tremendous resources--a fertile area for business-to-business start-ups. So we're going to be very provincial."

What are the lessons here for the entrepreneur?

You have two jobs to do in getting yourself in front of an angel investor. The first is to give as much shape to your idea as you can, preferably in the form of a good business plan explaining what your product or service will do, who needs it and why they will buy it.

The second is to get the right connections--and this is not as difficult as it sounds. First of all, think locally. If you're in Santa Barbara, don't start out trying to find an angel in Santa Monica. Los Angeles is a conglomeration of communities, and these days most come equipped with their own angels. Find those in your own--even if you end up dealing with angels from other areas as well.

To do this, go to your attorney and your accountant and ask whether they have pipelines into the angel investors in your community. If they don't, can they refer you to others who do?

Don't be afraid to ask. Many legal and accounting firms organize entire practice teams specializing in "new-economy" start-ups and growth companies, and you can bet that these people know exactly where to find not just angel investors but venture capitalists and private equity investment groups as well.

You also want to ask your banker and any professional consultants with whom you work, of course, along with your customers and suppliers and the entrepreneurs in your acquaintance. If you have a solid idea for a new business, these people will be happy to help.

Next: How one Southern California entrepreneur prepared himself to get the angel backing he needed.

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Juan Hovey can be reached at (805) 492-7909 or at jhovey@gte.net.

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