Angel investors look to fund start-up or early-stage firms

One type of matchmaker is that chubby guy, Cupid, who’s always looking to spread some love with the sting of a single arrow.

Marcia Schirmer is a different kind of matchmaker. As executive director of the Colorado Capital Alliance, Schirmer helps bring together angel investors and entrepreneurs hungry for cash.

Angel investors are individuals looking to invest in start-up or early-stage companies. They differ from venture capitalists in that they invest in firms directly rather than through a fund, and they usually take a hands-on role in managing companies that receive their cash. In exchange for a higher level of risk , angel investors enjoy a higher potential payoff than venture capital investors.

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Investors formed the Colorado Capital Alliance in 1997. In 1998, Schirmer’s agency helped facilitate about $3 million in angel financing for five companies.

The investment group also works with groups across the state in its quest to match investors with companies. Its partners include state-funded small business development centers, the University of Colorado’s Center for Entrepreneurship in both Boulder and Denver, and the Boulder Technology Incubator.

Information on investors and entrepreneurs is fed into the firm’s database, says Schirmer. “When a match is defined by the computer, we circulate a three-page executive summary” to prospective investors, Schirmer explains.

Potential investors review the summaries in confidence, and remain anonymous to potential investees until they decide whether they want an introduction. If investors want an introduction, the angel firm will make it for them, Schirmer says. But the group is strictly a matchmaking service, and after the initial contact, it stays out of the way, she says.

Plans for 1999 include an expansion of educational services for entrepreneurs and prospective angels. Another book on angel investing is in the works, says Schirmer. The Alliance published “Business Angels: A Guide to Private Investing” in 1998. Schirmer describes the book (reviewed by The Business Report in November 1998) as a “one-of-a-kind” guide to making an angel investment, including sections on due diligence and exit strategies.

What’s the angel investing outlook in 1999?

Schirmer sees no slowdown in angel activity this year in Boulder or Colorado. Investors associated with CCA have about $23 million available to invest, she adds.

Jim Linfield, general partner of Cooley Godward, a law firm that deals with venture capitalists and entrepreneurs in the Denver and Boulder, says proceeds from initial public offerings and younger firms are another source of angel funds.

“With people having made money on the sale of companies or initial public offerings,” says Linfield, “we’re finding a number of those executives are recycling their money into early-stage venture investments.”

Because Boulder is a center of entrepreneurism, Schirmer says the number of firms needing angel capital will continue to grow in 1999.