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Start-up funding scarce. Who was to blame?

May 31, 2009|Alana Semuels

Hattie Bryant and Bruce Camber said they were thrilled when John Garcia told them he had made a fortune as an entrepreneur and could help their company make it big too.

Swayed by his sales pitch -- including his claim that he had scores of people lined up to invest in promising companies like theirs -- the Irvine couple said they paid Garcia $50,000 in fees and then waited for the money to roll in.

But in the end, the married couple claimed, Garcia didn't find funding and tech support for their 14-year-old company, Small Business School, which produces videos for public television stations.

"When you hear his story, you go, 'Wow, he would be a great partner,' " Camber said. "But we learned that if anything seems too good to be true, it is."

For The Record
Los Angeles Times Wednesday, June 03, 2009 Home Edition Main News Part A Page 4 National Desk 1 inches; 53 words Type of Material: Correction
John Garcia: An article in Sunday's Business section about complaints against John Garcia and his company, Angel Strategies, said he serves on the advisory board of Chapman University's Leatherby Center for Entrepreneurship and Business Ethics. Garcia served on the board in 2002. The board became inactive in 2003 and has since been disbanded.
For The Record
Los Angeles Times Sunday, June 07, 2009 Home Edition Main News Part A Page 4 National Desk 1 inches; 55 words Type of Material: Correction
John Garcia: An article in the May 31 Business section about complaints against John Garcia and his company, Angel Strategies, said he serves on the advisory board of Chapman University's Leatherby Center for Entrepreneurship and Business Ethics. Garcia served on the board in 2002. The board became inactive in 2003 and has since been disbanded.

Garcia, a well-known figure in Orange County entrepreneurship circles, disputes the couple's claim as an attempt to blame him when their business suffered in the economic slump. He said he helped them find the partners, including board members, that they were seeking.

But in interviews with The Times, more than a dozen people said they had paid Garcia tens of thousands of dollars in fees with few results to show for it.

"Eventually, we couldn't waste any more time with him," said Richard Knapp, who runs a Manhattan Beach security software company called Avanton.

Knapp said he retained Garcia in 2005, paying him about $15,000 and giving him a 5% stake in the enterprise. Garcia spent most of his time bragging about his past successes, yet he never produced any funding, Knapp claimed.

Garcia, 55, of Santa Ana, disputed the accusations made by Knapp and other dissatisfied clients, and said that he had introduced them to contacts and had consulted with them on their businesses as agreed.

In some cases, he said, his customers simply didn't have strong enough business plans to attract investors. Other times, Garcia said, they had good plans but were victims of a tough economy and needed to be patient.

"When things don't go as they thought they would, they come back to me," he said. "They forget what we did together."

Several of Garcia's clients have filed complaints with the Securities and Exchange Commission, which declined to comment.

Legal experts, however, point out that complaints that don't involve multimillion-dollar amounts have a tough time drawing scrutiny from authorities.

"It represents an unfortunate effective loophole in enforcement for victims who may now have no resources to pursue civil claims," said John Hueston, a partner at law firm Irell & Manella in Los Angeles, who was the lead prosecutor with the Justice Department's Enron Task Force.

Venture capital experts, meanwhile, warn that paying someone to provide connections with investors is probably a mistake.

"Anyone I talk to, I discourage them from talking to guys who do that -- there's no value-add," said John Babcock, a partner at venture capital firm Rustic Canyon Partners in Santa Monica. "But it's easy to see how you get fooled because they're telling you exactly what you want to hear."

In a tough funding climate, it's hard not to strike a deal with a charismatic consultant offering a leg up, said Ohio entrepreneur Joel Keller.

Keller said that in 2006 he gave Garcia $15,000 to help his renewable energy start-up, Southwest Bio Energy, find funding. For that, Keller said he received two or three consultations by phone with Garcia. The company wasn't able to find funding and is now defunct.

"We were pretty much desperate at the time, so we bit the bullet and paid him," Keller said. "It took an awful amount of money out of our pockets."

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Looking for 'angels'

Garcia said he launched Tustin-based Angel Strategies in 1997 with partner Jim Casparie after helping start a few companies himself, including a medical supply firm and an investment fund focused on healthcare.

The firm's name refers to a subset of venture capitalists known as "angel" investors -- because they provide much-needed money for small start-ups.

Garcia, who serves on the advisory board of Chapman University's Leatherby Center for Entrepreneurship and Business Ethics, met some of his clients at conferences for fledgling business owners. It was at such an event at a Hyatt hotel in Orange County that Bryant and Camber met Garcia in early 2008.

The couple were trying to expand Small Business School. They said they agreed in July 2008 to pay Garcia $50,000 to turn the company into a viable Web enterprise and to establish a funding strategy.

Over time, though, Bryant and Camber did all the work, meeting with potential tech partners on their own while Garcia did nothing, the couple claim. Two months later, they asked him to refund $32,000, the amount they had paid to date.

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