Calling All Angels: Chamber builds network of angel investors to help cash-strapped companies

A new network designed to match angel investors with local companies that are desperately seeking capital is quietly taking shape under the guidance of the Springfield Area Chamber of Commerce.

The Springfield Angel Network already has about 20 members – each with a net worth of more than $1 million or an annual personal income of $200,000 – but chamber officials hope to recruit at least 10 more accredited investors to establish the group’s baseline.

“The beauty of this program is there is no structure. There are no rules, per se,” said Greg Williams, senior vice president for economic development at the chamber. “It’s a very unstructured way of doing structured deals.”

There’s no limit on how many angel investors can join the network, which will initially zero in on companies steeped in research and development at the Roy D. Blunt Jordan Valley Innovation Center. Springfield’s best bet for retaining those companies is showing them the money, said Williams, who has facilitated the formation of the angel network.

“A key element to capturing those deals and maintaining that local commercialization is equity; it’s funding,” he said. “We think that if we can ‘wave’ some money that (companies) will establish themselves here and consider this a home base of operations.”

Williams said the inaugural class of investors could hear from their first suitor as early as October, but he coyly declined to say whether a JVIC affiliate company was behind the proposal.

“It could be,” he said.

Borrowing best practices

The Centennial Investors Angel Investor Network in Columbia served as the model for Springfield’s attempt to align willing investors with deserving companies.

The Columbia Chamber of Commerce took the lead in creating the network, which essentially provides member investors with a forum to evaluate “promising, early-stage investment opportunities” involving mid-Missouri companies, according to its Web site, www.centennialinvestors.com.

Centennial investors pay a $500 annual membership fee, which includes the cost of the dinner meetings. At those meetings, companies make their pitch to members, who individually decide whether to invest their money and, if so, how much.

The Springfield Angel Network would operate in an almost identical fashion, Williams said, adding that a four-person committee will screen each proposal before forwarding the top picks to investors. Committee members are Williams; Allen Kunkel, associate vice president of research and economic development for Missouri State University; Dawn Hiles, interim director of the Edward Jones Center for Entrepreneurship and Innovation at Drury University; and Steve Nurnberg, the center’s executive in residence.

Some proposals may only receive financial backing from a single investor. Others may win over the entire group. Either way, the chamber steps aside at that point, and a “champion” investor is chosen to conduct due diligence on proposed deals and lead contract negotiations.

“We’re out of the way because we need to get out of the way,” Williams said. “We don’t have that expertise or the ability to structure deals. That’s going to be the responsibility of the angels and the company receiving the investment.”

Deals headed to the network are considered high-risk, and Williams said investors who have already signed up know they may only see a slight return on their investment or – in the worst-case scenario – no return at all. The target return is 10 to 30 times the initial investment over five to seven years, he added.

“These are intelligent people with the wherewithal to perhaps lose money or not recognize a significant rate of return,” Williams said. “That’s a given going into this program. It’s a given that you may do nine or 10 deals before you get a home run. And there will be those that want to sit on the sidelines and observe.”

Annual membership for angel investors is $500, and each is expected to invest a minimum of $25,000 annually. Investors also are encouraged to actively steer the deal by offering their expertise or perhaps sitting on a company’s board of directors, Williams said.

“It could be not only profitable but enjoyable for those who participate,” he said.

Charting the course

Sheila Collins recently earned her halo as an angel investor.

The owner of Springfield Granite-Plus didn’t need to be persuaded to join the Springfield Angel Network; in fact, she was one of its earliest advocates. Collins said she’s been “harassing” Williams about the need for a regional angel investor network since she returned to Springfield four years ago.

Collins said the vibrancy of Springfield’s business community is the perfect foundation for an angel network like the one she witnessed in the Winston-Salem, N.C., region that capitalized several high-tech startups. She said angel networks like Springfield’s offer an alternative to “mezzanine funding,” or late-stage venture capital pumped into companies prior to an initial public offering.

“It’s just logical,” Collins said, adding that she will treat network investments like any other business proposition. “It’s not a charitable venture, by any means.”

Collins was among 300 people who attended the chamber’s June 13 kickoff for the Springfield Angel Network. Although she recognized many business leaders at the event, Collins said she doesn’t yet know who else has joined the network. Regardless, she’s enthused about the investment opportunities that lay ahead.

“I really don’t have any connection with any particular industry,” said Collins, whose background is in manufacturing. “My preference would be that we would be open to good ideas. … I just don’t think you want to limit it. I’m keeping an open mind.”

Companies that win over Collins and her counterparts could see their bottom lines change overnight. Angel investors nationwide galvanized 48,000 business deals in 2005 to the tune of $22 billion, according to the chamber.

Steve Fox said he expects the angel network to complement Quest Capital Alliance LLC, a Springfield-based private equity firm he manages. Fox said Quest’s average investment is $750,000, and angel investors will initially target the $500,000 range – although Williams said he hopes a $2 million deal wouldn’t be out of reach as the network grows.

While the ability to raise capital is certainly important, Fox said the success of the Springfield Angel Network might hinge largely on whether there’s a steady flow of high-quality deals.

As for potential conflicts between companies and their angel investors, Fox said personalities always come into play but that both sides are united by a common goal.

“At the end of the day, the investor is a shareholder just like the entrepreneur, and they’re trying to maximize the value of the investment,” he said. [[In-content Ad]]