For the uninitiated, angel investors might sink, say, $750,000 to help a startup realize a great idea. The angels — they’re called that because, unlike a venture capital firm, they typically fund companies at their earliest stages — can gain a roughly one-third stake in a company, shooting for a return of 10 to 20 times their initial investment after a few years.
Or so they hope.
But the founders of Colorado Angel Investors Inc. are not naïve. Fort Collins tech incubator Rocky Mountain Innosphere board members Brad Florin, Mark Kent, Dave Dwyer and DuWayne Peterson all have been around the tech startup block. Their organization at the moment totals more than a dozen members, and it’s aiming to add to its ranks of accredited investors.
“You do five or 10 or those (companies), the hope is you really only need one of them — or two (to return your investments),” said Kent, executive-in-residence for Access Venture Partners of Westminster and a self-described Silicon Valley refugee.
The formation of Colorado Angel Investors is definitely welcome in an environment where startups routinely complain about limited access to capital. Part of the reason the investors have chosen to focus on an area within a 100-mile radius of Fort Collins is that they see opportunity in a thriving entrepreneurial environment – not to mention a capital vacuum.
The founding angels enter the foray as early-stage tech financing in Colorado has plummeted in recent years. Their group represents the only one of its kind in Northern Colorado and one of a handful of angel investment groups statewide.
Nationwide, “angel capital is a growing form of financing for seed-stage (companies),” Kent said. “Venture capital has been consolidating; there’s still some here, but a lot of it went away in the recession.”
Angel investments tend to be much smaller than those made by VC firms, but the money can still be significant.
In the third quarter of 2012, the median size of angel group rounds nationally reached $640,000, the highest in the five quarters tracked by Silicon Valley Bank. The report identified 541 angel deals and $804.4 million in funding nationwide.
As for how they plan to select startups, founding members will meet with applicants to screen prospects before the entire club evaluates proposals at a monthly meeting. At that point, investors, perhaps joining with others in the club, decide whether they want to participate.
“The goal, of course, is to connect our members individually with companies looking for investors,” Florin said. “If we have a meeting and 15 investors look at this company and only three are interested in moving forward, they would continue.”
The relationship doesn’t stop with the mere exchange of dollars and equity. Investors typically form close relationships with the companies in which they invest to manage and help them grow, Florin said.
“When you’re a startup and you have no money, you’re trying to get the ball rolling, you think it’s all about the money: It really isn’t,” he said. “It’s about the money and the person who comes with the money and the value they can add to your business.”
Colorado Angel Investors isn’t planning to create a fund per se. Its member-investors will negotiate their own deals with the companies that most interest them.
Nor have the angel investors narrowed their focus to a particular tech sector, such as hardware or life sciences. But each brings unique expertise: Florin knows software, for example.
And while Florin and the other “angels” also won’t make the kind of larger investments that a VC firm might, they hope that their investments will draw venture capital. VCs typically seek to invest in a company that stands to make $100 million in annual revenue. Of course, not every company is destined for that kind of heft.
Startups interested in applying for funding can find Colorado Angel Investors at Gust.com, a website run by the Angel Capital Association.
Steve Lynn covers technology for the Northern Colorado Business Report. He can be reached at 970-232-3147, email@example.com or Twitter.com/SteveLynnNCBR.