Lamé didn't understand: "What do you mean?"
"Our money -- you've spent it, where did it go?" Lamé remembers the angel saying.
"We paid off our creditors with that money, per your accountant's orders," Lamé started to explain before being cut off.
"Don't lay this on our accountant. You and your CFO are responsible." Slamming his fist down on the table, the angel yelled, "And where are your revenues? This isn't a charity we're running."
Lamé couldn't believe what he was hearing. Not only did the angels approve BSL's payment schedule; he understood it was their prerequisite for investment. And why were they talking about revenues? It had been just five weeks since they had crawled out of bankruptcy, and he'd already paid off the creditors, introduced a new product, and had $6 million in expected sales. But for the next two hours two of the angels assailed the projections as inflated and unprofessional.
Looking back, Jelinek says he remembers the projections being off by a factor of 10 and that, by the angels' estimate, the company would be out of cash in another few months. Lamé's earlier slide show to the shareholders was another hot point, Jelinek recalls. The company was going downhill, and yet "anyone who saw Lamé's presentation," he says, "would have run to their broker and bought the stock no matter the price. Lamé was blatantly lying to the shareholders with these rosy projections, opening us all up to possible lawsuits." Jelinek, too, was feeling the heat. "Indirectly, I was being attacked as much as Lamé for dragging my coinvestors into this, a deal they should never have done."
When the meeting adjourned, one angel gave Lamé a last piece of advice: "You have nothing to celebrate. You'd be better off skipping the party tonight to fix those numbers. We'll meet again tomorrow morning at nine o'clock." The angels did go to the company party and on the way laid plans for installing a new management team -- one they had handpicked. One shareholder who overheard the conversation says, "I knew then that it was over for Lamé." Lamé says he knew, too. He couldn't help but recollect the events that foreshadowed his fate: the impromptu warning from the angel's accountant, the cautionary tale from Jelinek's own client, and more recently, the terse barbs Jelinek had passed along about Lamé's CFO. All isolated events, but together these episodes appeared to seal his fate.
The final blow came on April 12, 1986 -- just six months after Lamé' and his angel toasted BSL's future and partnership together. Right before a director's meeting Jelinek pulled Lamé aside and strongly suggested he step down. It would be better for the company, Jelinek told Lamé. What's more, Jim Durham, whom the angels had brought in to replace Lamé's CFO, was better equipped to manage the relationship with the angels. Lamé agreed to leave. After putting "the better part of my life into this company," he finally realized it was a fight he could not win.
Four years later BSL (now renamed Knowledge Data Systems Inc.) goes on. Under new management, revenues have climbed from about $6 million to $8 million, while the stock price has inched up form 50¢ a share in 1985 to about $2 in 1989. Jelinek, still on the board, regrets dethroning Lamé, but claims he had no other choice: "Lamé's fiscal controls were terrible, and he consistently undershot his projections." Jelinek, meanwhile, holds an angel position in six other small companies.
Today Lamé has a $10-million cellular-phone franchise in Walnut Grove, Calif. He says he'll never forget the loss of BSL, but he reasons it was a doomed partnership. To hope that angels will be more forgiving or more understanding is a fatal misconception, he cautions. "Unlike venture capitalists, angels have no room in their portfolio for mediocre businesses. Angels only do a limited number of deals. Therefore, each one must succeed -- even if they have to dictate that it will."
* * *
How do prospective entrepreneurs go about finding sources of adventure capital? There's no sure answer to that question. Angels' services aren't listed in the Yellow Pages, and many prefer to keep their investment interests private. As one of the breakfast-club members puts it, the elusive nature of the angel is a necessary hurdle, separating the determined company builder from the not-so-determined one. "If an entrepreneur isn't willing to turn over every rock to find capital, then I don't want to meet him," he scoffs. Often angels are leaders both in their industry and in their community. They're men and women who've successfully built a company and, rather than retire with their riches, want to pump their money into the future.
Still, whatever the generalities about adventure capitalists, exceptions abound. Many are in the game for the thrills as much as for the cash return. Others have altruistic motives. William Mays, for example, an Indiana-based angel, puts his dollars only into minority-run start-ups. As a member of a minority group himself, Mays believes these founders crave the guidance of someone who's been there -- like himself. To break through any pretension, Mays often meets his founders in the sauna. "I want them to relax so they feel comfortable telling me the bad news," he explains.
Another angel, Douglas Van Zee, of Canton, S. Dak., not only looks for deals within his own industry, he narrows it down to his own $2.5 million company. So far, he's financed three employees, doing for them what was done for him 11 years ago when his boss forked over $25,000 to help launch Van Zee's grocery store. What's more, Van Zee says, investing in trusted employees lessens the need for lengthy, costly due-diligence proceedings.
Unlike Mays or Van Zee, many angels can't explain why they do what they do. It's like an addiction, they insist. It's uncontrollable. One member of the breakfast club compares his motivation to that of a motorcycle racer he knows. After breaking every bone in his body racing motorcycles, his friend still can't get away from racing. No longer in the driver's seat, this racer now coaches young riders. "We're playing the same game," the angel claim
