When it's time to be touched by an angel investor

By SUSAN BOWLES

© St. Petersburg Times, published January 15, 2001

TAMPA -- When Tribridge got a chunk of money a few years ago from a local angel investor, it got much more than cash.

It got the confidence to make smart hiring and investment decisions, says Tony DiBenedetto, chief executive of the Tampa business, marketing and technology consulting company. It also got connected with the vast professional network of its angel, Tom Wallace, co-founder of Internet job site BrainBuzz.

"People talk about smart money. And Tom is the epitome of that for us," DiBenedetto says. He won't say how much Wallace provided, only that, "It was not a ton of money, but it was enough to allow us to focus on the business fundamentals."

And that's the point. Angels, those high net-worth individuals who meet the Securities and Exchange Commission's criteria for "qualified investors," play key roles in the private equity equation. They typically invest in seed or early-stage companies, filling the void between money from friends, family and credit cards and major cash infusions from a venture capitalist.

"Every angel investor has his own experience and track record," says Mike Siewruk, a local angel who has invested in five companies since 1997. Most have built and sold a business and are looking for somewhere to park the money they've made. Or they're running a successful company and have capital to invest. In either case, Siewruk says, they bring dollars and a raft of experiences that can be invaluable to a fledgling entrepreneur.

Yet finding an angel isn't always easy. Angel investors historically have operated in a less structured, less visible way than their VC counterparts. Groups of angels are beginning to aggregate in different parts of the country. But in the Tampa Bay area, the network remains relatively loose.

"You do things because you have a relationship with somebody or a relationship with somebody who has known somebody for a long period of time," says Richard Brandewie, head of Founders Resource Group and another bay area angel.

"It's definitely a network that's not easy to tap," says Greg Schmitzer, chief executive of Jibe Inc. in Clearwater. That Internet software company was founded in November and has just received angel dollars from Wallace.

Schmitzer relied on old-fashioned networking when he set out to find Jibe's personal angel. He called top CEOs at companies he respected and asked to talk about how they succeeded in business. Those appointments helped him build a network and opened up doors to several potential investors.

"Most CEOs are entrepreneurs themselves who've been in your shoes," he says. "I got amazing advice from these people."

DiBenedetto, too, relied on a network for his angel funding. He met Wallace about 10 years ago. Over time, "Tom got to know me and said, 'Man, you just seem like the kind of guy who'd want to do your own thing,' " he recalls. When he and a partner floated an idea by Wallace in 1998, "He said, 'You guys are bankable. Just pick something, and I'll give you the money.' "

Angels, too, rely on networks to bring promising deals to them. Venture capitalists provide leads, Siewruk says, "because VCs get way too many unqualified business plans."

The Tampa Bay area is home to a number of networking groups, such as the Tampa Bay Internet Forum and the Internet Business Association International, that can put angels and entrepreneurs together. So while local angels may not operate in a formally organized way, the community is tight.

"To tell you the truth, it's not that big of a space," Wallace says, tagging locally active angels at 20 to 30.

Yet once an introduction is made, all bets are off. Angels work independently, meaning the amount of money they invest and the equity stake they take vary from company to company. Wallace says his investments range from $25,000 to $500,000, depending on circumstances.

The point at which angels will invest also varies. Brandewie, for instance, looks for companies that have generated revenue or at least had some sort of validation of their business plans. Wallace focuses on early-stage technology deals. Siewruk, too, typically wants an early-stage company he can help mold, although that criterion isn't set in stone.

"It could be as early as 'I've got an idea.' And it could be as late as 'I can't quite get to the VC threshold, and I need some money,' " he says.

Angels do share common traits when it comes to investing in companies. They look at the viability of an idea, its market and, above all else, the people in charge.

"First and foremost, I look at the team," Wallace says. What's its experience? What's its track record? What are the character and integrity of the people involved? And do they have an overriding passion for their company and idea?

"I look for the people," Siewruk agrees. "I want somebody who's leading the company to be willing to sacrifice just about everything he has to get the deal done."

If you think angel money is right for you, it's important to prepare before making inquiries or pitches. Know your industry inside and out, know your business plan just as well, and be prepared to answer pointed questions about it.

Also know what you want from your angel. Wallace, for instance, makes a couple of different types of investments. Sometimes, he simply writes a check in return for equity in a company. But other times, he invests with the caveat that he'll be integrally involved in the company: sitting on its board, helping to recruit managers and helping the team in any way possible. "And then there's some in-between."

"Not all angels are created equal," he says. 'Don't take money from someone who thinks he can add value and you don't."

Another tip from angels and the entrepreneurs they've invested in: Know whom you're approaching. Asking someone for money is a lot like making a sales call, Siewruk says. If you're selling a consumer good, you'll tailor your presentation to your customer. "You should study up on it," he says. "You should get to know your buyer."

Finally, while it's good to have some idea of the valuation you want, or what amount of equity you're willing to give up for what price, don't let it be a deal-killer.

"The most important thing is to get the best investors you can find, meaning smart money," Jibe's Schmitzer says.

Adds DiBenedetto: "If you have the money you need to get things started and it's a good fit, don't be greedy."

- Have a comment about growing your business or a story idea? Susan Bowles can be reached at susanbowles@mindspring.com.

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