Angel group founders share insights, investment criteria
By Jim Kendall
This column originally appeared in the January 13, 2014 Daily Herald
Breathes there a business owner who at some point hasn’t dreamed of angel financing – a wealthy individual or group of investors who will shower money on the entrepreneur’s obviously deserving business?
Great dream, except angels and other investors tend to be savvy folks willing to invest in businesses they think have a chance. Whether a particular business would interest angels is difficult to determine.
Knowing what makes angels comfortable is important. Insights the three co-founders of Naperville-based West Suburban Angels (WSA) – entrepreneurs Tianyi Joe Zhu, Mike Healy and Kenn Miller – shared during an interview can help. If you’re serious about angel dollars, your review of angel investment criteria will be equally important.
“We’re entrepreneurs (with a good understanding) of when we need money and when we don’t,” explains Zhu. “We’re very calculated in terms of money. We’re looking at seed dollars, not safety net. What have you accomplished so far without money?”
Miller makes the point that some applicants “shouldn’t (seek) angel money because they’re not ready.” Not ready? “Their financials aren’t yet developed,” Miller says.
Financials count. So does management.
“We know that early stage companies will pivot a number of times,” Healy says. “We invest in the team – if we believe they have what it will take” to navigate the entrepreneurial waters.
The investment decision often comes down to “how the (presenting) team reacts to our questions,” Healy says. Then the invest-or-not decision becomes more personal. “Do I want to work with them?” asks Healy.
West Suburban Angels requires entrepreneurs seeking funds to apply through Gust LLC, a New York data collection point for both entrepreneurs and investors. The process is online.
With more than a dozen local listings at last count, www.gust.com in fact is a decent source of Chicago-area angel and venture capital groups.
West Suburban Angels, scheduled to have just its second presentation session last week, is new. Newer yet is Hawk Angels, being organized by veteran angel organizer Ron Kirschner. The initial Hawk meeting also was planned for last week.
To give entrepreneurs a basic idea about what angels seek before they commit, I’ve blended Hawk and WSA investment criteria into an abbreviated list:
* A unique, market-ready technology, process or program in business services; broadly defined engineering technologies; life sciences or health care.
* Technology that solves unmet or poorly meet needs. The technology should be past initial launch.
* Significant competitive barriers that favor the company. A clear advantage that differentiates the company from others.
* A well-defined intellectual property portfolio or clearly established product innovation process.
* A management team that is financially invested in the venture and has expertise within the venture’s marketplace.
* Scalable operations.
* Plans, records and documents that are maintained in a way that allows for a smooth due diligence process.
There’s more. Most angel organizations list investment criteria on their websites, a good place for research.
Jim Kendall welcomes comments at his new email address, Jim@kendallcom.com
© 2014 Kendall Communications, Inc.