Angel Investing Boosts Area Entrepreneurs
We’ve all seen or heard of “Shark Tank,” the high stakes pitch show where entrepreneurs seek investments for their business. If you’ve watched it, it may seem like the process of getting funding for your business is a quick, drama-filled, series of questions that flies by in about 10 minutes or less. But, that’s the beauty of TV and the power of editing. For those in Lansing looking for investment, but are not ready for the sharks, they turn to angels.
An angel investor is someone who provides capital for a business startup, usually in exchange for convertible debt or ownership equity. In Lansing, those investors are organized into a group called The Capital Community Angel Investors (CCAI). They invest their own money and personal expertise into businesses they believe have the potential to introduce unique, high-growth, disruptive products and services into the ecosystem.
While the vetting process for the CCAI may not be as dramatic as it is on “Shark Tank,” the world of angel investing is just as high stakes as it appears on TV. The security protecting the investment of an angel investor is equity (a certain percentage of shares in a company). According to Mark Hooper, a CCAI founding member, “Equity, when looked at in pure dollars, is the highest and the most expensive risk.”
When investing their money, investors want to find the best path to getting their money back and optimize a return on their investment. This is why the screening process, often known as Due Diligence, is so important and can be in-depth and painstaking, often diminishing the applicants from around 100 down to two or three that will actually receive funding.
Out of 10 businesses the CCAI may choose to invest in, four are likely to fail fairly quickly. Three or four may return some investment, but almost all of the return is going to come from one or two of the companies.
Because of the risk involved and the effort it takes to evaluate companies, there is a very small number that can run the gauntlet and get to the level where they are funded. “But along the way, those that have participated learn more about their business, avoid making grave mistakes and then can make better decisions about the kind of funding that is appropriate for them,” said Hooper.
Before businesses are funded, they are assessed and the process pursues multiple perspectives, looking into the product, market, strategy, the team, prime risks and more.
During this process, entrepreneurs such as John Freshley, CEO of ONL Therapeutics, a company backed by the CCAI, get a closer look at their business and get the chance to change and adapt their business plan. “They ask the hard questions,” he said. “But your plan becomes more challenging and exciting.”
Turning to an angel investor rather than a venture investor allows a unique perspective and opportunity when it comes to the lessons learned about a prospective venture.
Investors have a wide range of expertise; and sharing that expertise is often, at least for Hooper, why angel investors choose to do what they do. “I’ve had a 40-year business career and I’ve learned a lot from the people helping me along the way,” he said. “Giving these businesses advice and guidance is my way of giving back.”
Becoming an angel investor also requires a long-term mindset and the desire to take on risk, as it’s almost never a safe investment.
Some examples of high-potential ventures that have come out the other side of the vetting process to be funded by the CCAI include a mobile audio and video display, alternative energy, environmentally safe pesticides and software and mobile apps.
Investors like Hooper know that these ventures are only a small part of a larger community. “We may fund the higher growth companies, but the other companies (service, lifestyle, retail, etc.) are the ones that will support the high growth companies.”