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Entrepreneurial angel

The founder of an equipment-leasing company, Michael Green heads the L.A. chapter of Tech Coast Angels, a group whose members invest seed money in start-ups.

December 16, 2012|By Walter Hamilton, Los Angeles Times
  • Michael Green, left, talks during a meeting of the Tech Coast Angels at UCLA's Anderson School of Management.
Michael Green, left, talks during a meeting of the Tech Coast Angels at UCLA's… (Anne Cusack, Los Angeles…)

The gig: Founder of Dakota Financial, an equipment-leasing company, Michael Green is president of the Los Angeles chapter of the Tech Coast Angels, a group whose members invest seed money in start-up companies. Green, 39, grew up in Los Angeles and now lives in West L.A.

The day-trading craze: After earning an undergraduate business degree from the University of Pennsylvania's Wharton School in 1995, Green tried to produce a movie — "like every L.A. kid," he said. But he couldn't raise sufficient funding to make the film and eventually lost $70,000 of his own money. At the suggestion of a few friends, he set out on an even riskier path — launching a day-trading business. His timing was excellent. He opened a Santa Monica office of New York-based Momentum Securities at the height of the Internet-stock boom in 1997. The operation was lucrative but stressful as many customers lost money. "People were smashing keyboards, punching holes in the walls and throwing monitors off of desks," Green said. Some customers became addicted and couldn't be talked out of trading despite sizable losses. "I was very upfront with people about what the risks were," he said. "There were some guys I was like 'You are ruining your life. Please stop [trading]. I beg you.'"

A new path: Green closed the business in November 2001 as the day-trading frenzy petered out in the aftermath of the Sept. 11, 2001, terrorist attacks and, for the second time in five years, he had to cast about for a new career. After a chance meeting on a golf course, Green co-founded an equipment-leasing company in 2002 (he bought out his partner six months later). He was drawn to the steady nature of the lending business, a contrast to the volatile day-trading industry. Dakota Financial borrows money from big banks and other institutions, buys equipment and leases it to small businesses in the trucking and construction industries. Green focuses on subprime borrowers who can't get bank financing. Many clients are hard-working and have solid businesses, he said, but have fallen into financial purgatory through poor money management or because their own clients haven't paid their bills. "You're trying to find people that are good humans but just happen to have bad credit," he said.

Business lesson: As Dakota Financial grew, Green groomed his staff to run the business as though he wasn't there. His logic: Many entrepreneurs are so involved in their companies that the businesses can't function without them. Rather than being a positive quality, that actually lowers the value of a company if a founder executive ever wants to sell it, Green said. "A company has much less value if it is too dependent on the CEO," he said. "If everything is in the CEO's head, if a buyer wants to buy it, they're very worried what will happen when you retire or leave."

"The worst two years of my life": The relative calm of his new profession was shattered in 2008 when the global financial crisis struck and banks cut off funding to borrowers perceived as risky. Green's lender refused to renew his credit line, a normally routine process, and instead demanded immediate repayment of his $10-million loan balance. A default would have destroyed his business and forced him into personal bankruptcy. "Here I was lending to construction [companies] and truckers with subprime credit in the middle of the collapsing housing market," he said. "There was no one on the planet that wanted to give me money."

Green searched frantically for new funding while pleading with his lender every month to extend his credit line. "I would say 'Look my business is sound. My customers always had bad credit. They're no worse off today,'" he said. He got a series of extensions over the next 12 months, but the lender added $600,000 in fees on top of interest rates that exceeded 16%. He found a new lender within a year, but at an even loftier rate. "I spent all day, eight hours a day, for two years" scrambling for cheaper financing, Green said. "I cold-called every single bank in the country, every wealthy person I knew in the country." He finally refinanced at a reasonable rate in June 2010. "I literally was like in tears when it closed," he said.

The entrepreneurial bug: With his company on solid ground, Green wanted a new challenge with an entrepreneurial tinge. He found it in the Tech Coast Angels, which matches fledgling start-ups with potential early-stage investors. He joined the group in early 2011 and became president a year later. His advice to entrepreneurs seeking to raise money? Try your best to prove that there is a real need for your product or service before you approach potential investors. You're likelier to get financing if you can demonstrate that there is a market for your product and that you have a well-thought-out business model. "The more you can validate what you're doing, the more investors are likely to believe in what you're doing," Green said.

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