What could be better than rich people who want to put money into your company? Angels -- wealthy individuals who back entrepreneurial companies on an informal basis -- usually sound like a start-up's dream. But the trick has always been finding angels when you need them.
In recent years a number of computer databases have been set up to try to match entrepreneurs and angel investors electronically. (For a listing, see How to Finance Anything, February 1993.) A Pennsylvania group is trying to do the same sort of matchmaking in person. In May 1991 the Technology Council of Greater Philadelphia launched the not-for-profit Pennsylvania Private Investors Group (PPIG). The goal: to get a network of serious angels in the room once a month with a couple of prescreened entrepreneurs -- and hope that deals get made.
Here's how the system works. According to Marc Kramer, executive director of the Technology Council, in Wayne, Pa., entrepreneurs first submit business plans to PPIG. The PPIG board then interviews approximately 60 promising company founders a year. Of those 60, about 30 are selected to make presentations to the club of 33 wealthy individuals. The angels -- who have themselves been screened to make sure they are high-net-worth individuals with small-company investment experience -- pay $500 a year in dues. The entrepreneurs pay $75 if they go before the board and an additional $75 if they are selected to present to the investors.
Kramer says the program has resulted in eight companies' raising more than $2 million combined. He is excited enough about PPIG that he'd like to try to replicate it in other regions; the nearby South Jersey Entrepreneurs Network was already launching a similar program at the end of last year. But a few caveats are in order: those eight deals were over a two-and-a-half-year period, and in each year some 300 to 500 entrepreneurs submit plans. In addition, because the group is designed to protect the privacy of the wealthy investors, presenting entrepreneurs have no way of following up unless angels contact them.
And let's face it: any transaction between investors and entrepreneurs is hard to systematize. Ask Dick Moberg, CEO and founder of Moberg Medical Systems, of Ambler, Pa. He raised about $700,000 for his start-up from an investor he met through PPIG. But here's the irony: the wealthy investor he met through PPIG turned out to be a professional venture capitalist who invested through a formal fund. Moberg did end up with angel investors, but he didn't find them at PPIG. He found them the informal way -- through his law firm!* * *
The Funding Funnel
Of the 300 to 500 business plans received a year by PPIG . . .
60 deals go to the board
30 go before investors
2 to 3 get funded