*kalo market bearish, mungkin artikel dibawah ini bisa
menambah keyakinan untuk masuk ke market*
How Angel Investors Get Their Wings
Backing entrepreneurs with good ideas can be a
moneymaker for these daring
investors who go where venture capitalists fear to
tread
by Chris Farrell
BusinessWeek Magazine
Not only can John Reid claim to have been visited by
angels, he is one. The
61-year-old entrepreneur founded his Parkers Prairie
(Minn.) medical-device
company, AbbeyMoor Medical, in 1997 with seed money
from so-called angel
investors. Such people invest in promising startups
too young and raw to
attract the attention and money of professional
venture capitalists. Reid
has also helped fund several early-stage ventures, on
his own and with
fellow angels.
The credit crunch and economic downturn have some
angels feeling skittish.
But others see opportunity: Studies show that the best
time to start a
business is when the economy is down. That's because
entrepreneurs with good
ideas will find cheaper land, labor, supplier
contracts, and other
ingredients that go into starting a business. Angels
that back such ventures
can earn impressive long-term returnsone study cites
a rate of return of
about 27%, on average, or 2.6 times the investment in
3.5 years. The risks,
of course, are steep. Still, 258,200 angels pumped $26
billion into 57,120
ventures last year, according to the University of New
Hampshire's Center
for Venture Research.
Any angel will tell you there's a significant learning
curve. But a big
transformation in angel investing is making it easier
to move up that curve:
the rise of more formal angel investing groups. It
wasn't all that long ago
that angels largely hooked up with entrepreneurs
through ad-hoc social
networks, friendships created over the years, perhaps
at the country club or
local philanthropic events. Since the latter part of
the 1990s there has
been a proliferation of more professionally organized
groupsusually with a
Web sitethat screen investments and pool money on a
local and regional
level. Estimates of the number of angel groups in the
U.S. and Canada go as
high as 275. The groups even have their own
trade-and-education association
in Washington, the Angel Capital Assn.
While many angels are current or former entrepreneurs,
and that background
can prove invaluable, they also need to develop
investing skills. The
successful angel adheres to the same disciplines that
make for a good
investor, from Berkshire Hathaway's ("BRK-A") Warren
Buffett to Yale
University's David Swensen. Understand the risks.
Follow an intellectual
framework. Have a well-thought- out methodology for
buying and selling. Do
due diligence. Diversify. "Angel investing isn't easy,
and it's very high
risk," says Tony Stanco, executive director of both
the National Council of
Entrepreneurial Tech Transfer and of Angel Investors
of Greater Washington.
"But it's high reward."
Experienced angels recommend that investors create a
diverse portfolio as a
buttress against inevitable failures. After all, these
are companies with
little cash flow and no operating history. Angel
groups funded, on average,
about seven companies in 2007. Only a small percentage
of an angel's capital
should be at riskno more than 10% of investable
wealth, counsels Susan
Preston, currently general partner of the California
Clean Energy Fund's
Angel Fund, a public investment fund that takes equity
stakes in alternative
energy ventures. Longtime angel Richard Holdren, a
Houston-based serial
entrepreneur who has founded or invested in over 26
health-care startups,
adds that it's critical to keep emotions in check.
"You make money in angel
investing by killing off your losses early, as quickly
as possible," he
says. "The entrepreneur really believes that success
is just around the
corner, and you'll quickly go broke investing for
'just-around- the-corner. '"
Angels rightly tend to focus their efforts in the
industry they know.
Stanco, for example, was formerly an attorney at the
Securities & Exchange
Commission working with the software and computer
group. His investments are
concentrated in software. Reid is well-schooled in the
medical technology
business.
But to get a wider range of perspectives and deals,
and to pool resources,
many angelsincluding Reid, who lives in a largely
agricultural community
with a population of 1,032join angel groups.
THE "REAL DEAL"
Reid belongs to a group of 26 angels affiliated with a
larger umbrella
network, RAIN Source Capital, based in St. Paul, Minn.
RAIN organizes small
groups of angels in mainly Midwestern states into a
network of some 400
members. That makes it easier to develop a deal flow,
pool money, and share
expertise. Angels living in Grand Rapids, Mankato, St.
Cloud, and similar
Minnesota towns have invested some $7 million in
Reid's company. "We get
prospects in front of the network to find the members
who will say: 'I used
to be in that business' and to tell us whether it's a
real deal," Reid says.
There could be a deal coming in Mankato, he says, that
"we never would have
seen without the RAIN network."
The level of professionalism at angel groups is all
over the map. Some mimic
professional venture funds, a number have forged close
ties to universities,
and others are more like social clubs engaged in
for-profit philanthropy. A
common mantra among angels and angel groups is the
importance of due
diligence. That means pursuing questions like: What is
the market
opportunity, barriers to entry, and business model?
What's the company's
competitive edge? Is there an exit strategy? What is
the entrepreneur' s
background? "The biggest fallacy is that 98% of people
think if they have a
wonderful technology the business will take care of
itself," says Holdren.
"But the character of the entrepreneur is more
important than the
technology."
What sort of return can an angel expect? There's that
rate of return of
about 27%, on average, a result reached by professor
Robert Wiltbank of
Willamette University and Warren Boeker of the
University of Washington in a
study of 539 angels from 86 groups in North America
from 1990 to 2007. The
return figure comes from 1,137 "exits" during this
time period through
mergers and acquisitions, initial public offerings,
bankruptcies, and shut
doors.
Of course, averages can be a bit misleading. Remember,
on average Lake Erie
never freezes, and the stock market returns, on
average, some 11% a year.
With the return number for angel investing, keep in
mind that 7% of the
venture exits that the professors studied had returns
of 10 times investment
while 39% had a multiple of less than one times
investment. The Center for
Venture Research estimates that angels enjoyed a rate
of return in 2007
between 20% and 40%. "Invest what you could lose
without changing your
lifestyle," advises Jeffrey Sohl, director of the
Center. Inevitably, part
of the reward will be psychic. But it's fun to
remember the outcome of a
$100,000 investment that Sun Microsystems co-founder
Andrew Bechtolsheim
made to two Stanford University graduate students. The
check allowed the
students to move out of dorm rooms and start marketing
their revolutionary
idea. The result: Google.
Farrell is contributing economics editor for
BusinessWeek. You can also hear
him on American Public Media's nationally syndicated
finance program,
Marketplace Money, as well as on public radio's
business program
Marketplace. His Sound Money column appears on
BusinessWeek. com.
