in a university lecture hall firing questions at four aspiring entrepreneurs.
The aspirants were giving 20-minute presentations about their start-up
companies to the Los Angeles chapter of Tech Coast Angels, a group that
invests in new businesses.
Early in a company’s financial life, after friends and family have been
tapped for initial stakes, comes angel capital — investments from
individuals, often successful entrepreneurs themselves, who back newcomers
starting out as they once did on a smile and a shoeshine.
Their numbers and importance are growing. Last year Angels, along with some
venture capital backers of start-ups, invested $4.2 billion in more than 1,000
early-stage companies, according to Luis Villalobos, founder of Tech Coast
Angels in Orange County. It is one of some 200 angel capital groups in the
United States.
In 10 years, Tech Coast Angels has grown to 270 members in four locales —
Orange County, Los Angeles, San Diego and Westlake/Santa Barbara — who have
invested collectively $85 million in 128 companies.
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It’s a sign of how attitudes toward risk have changed in little more than a
decade that seasoned executives and financial managers now readily join groups
to put $200,000 to $1 million behind people with ideas and a sense of
adventure.
Top corporate executives with outsize pay and perks may have been heroes of
American business in bygone decades, but these days the entrepreneur is king
or queen and praised for creating jobs and innovation in the American economy.
It helps that returns on angel investing have been quite attractive.
“Angel investors typically earn 5 to 10 times their money in four to eight
years,” said Villalobos, citing a PricewaterhouseCoopers Money Tree study of
venture capital. But the spread of angel investing attests also to the
economy’s encouragement of innovation, whether in high technology or everyday
products.
Angel capital groups, whose members invest their own money, pride
themselves on rolling up their sleeves to help fledgling concerns. With each
group member obliged to review four to eight companies a month and invest
$50,000 a year in some of them, Angels say they act like a “farm system” doing
the due diligence on small companies that traditional venture capital funds no
longer take time for.
One Angel network, the Keiretsu Forum, founded seven years ago in
Lafayette, Calif., east of San Francisco, has grown to 500 members in
Colorado, Idaho and Washington as well as California. Keiretsu’s size allows
it to make larger investments, said Randy Williams, who started the group.
(The name derives from the Japanese word for companies linked by
cross-ownership of shares.)
The next stage for angel capital? Not surprisingly, it’s globalization.
Keiretsu Forum opened a chapter in Beijing last year “and we will open next in
Shanghai,” Williams said. There appears to be a receptive audience for
entrepreneurship in China.