Since tech deals are more capital-intensive at all stages (including the earliest, seed rounds), angels, too, are finding themselves making bigger investments than ever, often in the realm of $100,000 to $1 million. According to Freschman, they're looking for deals "the same way that venture capitalists and private-equity investors are looking for them -- in fact, often side by side with them at events like venture-capital fairs."
Thanks to angel-oriented Web sites, it's now easier for small companies to shop their business plans around or advertise for potential backers. Unfortunately for other types of businesses, it seems that electronic advances on the financing front still favor the technology companies. Consider OffRoad Capital's experience.
The company, which launched its services last year, aims to sell private-equity investments through the Internet, which -- in theory, at least -- should bring more potential backers to the table and increase access to investor capital for private companies in every field. But the reality is, just like everybody else, OffRoad has been raising money for tech companies. "We have to start somewhere, so we have started with the deals our customers want and understand," acknowledges Susan Woodward. "So our three financings to date have all been technology companies that just weren't quite ready for the initial-public-offering stage but, hopefully, will get there soon."
OffRoad's investors actually look a lot like typical angels -- they're just shopping through the Internet. Many have never done a private-equity deal before. Every investor must put up at least $25,000 to get a piece of the action. And each has a net worth of at least $1 million. "These are the people who probably don't live in California or New York and probably don't have the personal contacts that could get them into a great deal themselves," Woodward speculates. "So they've used the Web to find one."
But although electronic advances reinforce the migration to tech deals, you can still find contrarian investment patterns in the angel world, too. They're most prevalent in regions that are not overflowing with high-tech opportunities. Take Oklahoma. "We're not exactly Silicon Valley here," notes Bob Craine, the chairman of the Oklahoma Investment Forum Inc., a Tulsa-based economic-development organization that, among other things, sponsors an annual venture-capital forum to showcase the state's entrepreneurial companies.
As it is elsewhere across the nation, the angel community is growing in Oklahoma. "A year ago we had 5 or 10 angel groups across the state, but now there are 30 or 40," reports Craine. And while those angels probably would love to get involved with "the next eBay, they're also a pragmatic bunch," he adds. "Show them a good solid deal with the opportunity for a 25% or 30% return, and they'll probably want to get involved, whatever the industry." Show them a deal that has less growth potential but offers the chance to bring 200 new jobs to a small, struggling community, and they may jump on it as well.
At this end of the market, it pays to offer an investment angle. (And here's where the Internet can help companies conduct some helpful research.) There are angel groups, economic-development organizations, and seed-capital firms that target geographic locations, minority or female business owners, and even certain industries. And for entrepreneurs who simply cannot find any that relate to their particular set of circumstances, there's always the alternative of offering equity to a strategic partner (perhaps a supplier, a major customer, or a large competitor).
Fortunately, even though the opportunities in equity markets have narrowed in recent years, the world of debt has shown a lot of interest in serving small and midsize private companies. And business owners with no other realistic alternative may be comforted to know that borrowing options have never been better.
This is another place where the Internet has made an important contribution. Company owners can (and should) comparison-shop to find the best terms and borrowing limits among entrepreneur-friendly lenders in their region. Using the Web makes it easier to identify good prospects among the broad range of financing players, which these days increasingly include "nonbank lenders" (such as nontraditional lenders with Small Business Administration connections); small-business-oriented private banks; equipment financiers; and other specialty lenders. Some companies have already streamlined their credit or loan applications to speed up electronic approval or to permit quick online assessments of whether approval is likely. That's a trend that should snowball during the next year or so.
But there's more going on. Although bankers have waxed hot and cold on the small-business community for years now, the long-term picture is finally improving, mainly because so many different kinds of lenders have made the entrepreneurial community part of their own growth strategies. And while the biggest money-center banks do, and probably always will, lean more toward the best established and most growth-oriented private ventures, there are so many community banks, small regional banks, and (in increasing numbers) business-only banks that it's rare for a loan-worthy company to be turned down. According to the SBA, small-business lending rose by an impressive 1.3 million loans from 1997 to 1998, the most recent year for which statistics are available. The biggest increase took place in those often-difficult-to-obtain small loans, those under $100,000.
Being creditworthy, of course, is still essential. In this competitive marketplace, definitions of creditworthiness are shifting and, in some cases, broadening. But miracles in financing still don't happen here, either. As Michael Kane puts it: "Realistically speaking, you'll need to have cash flow to cover at least 1.25 times whatever your debt service is going to be. And you'll need some kind of assets, whether they're corporate collateral or personal assets."
