Bands of Angels
Local groups of investors are forming all over Florida, providing funding to capital-starved emerging companies.
Craig Reilly turned to Winter Park Angels when he needed money to grow PlusOne Solutions. [Photo: Jeffrey Camp]
In April 2008, Craig Reilly was ready to take the next step. His Orlando firm, Plus-One Solutions, which provides background checks and other business services for companies that use independent contractors, was off the ground and had a major customer lined up. Reilly and his two partners had gotten the company that far with their own money but had begun looking for investors to fund more growth.
Florida Angel Funds
New World Angels, Boca Raton
Emergent Growth Fund, Gainesville
Go Beyond Network, Naples
Springboard Capital, Jacksonville
Gulf Coast Venture Forum, Naples
Catapult Capital, Orlando
Women Angels, Miami
Tamiami Angel Fund, Naples
MBF Healthcare Fund, Miami
Five months later, 19 members of the angel group had invested a total of $750,000. Reilly was able to expand even as the financial markets crashed and financing options evaporated for most other businesses. Plus-One Solutions has met its growth targets and is about to undergo another financing round to fund more expansion. The angels will participate again. "It's become even better than what we were investing in before," says Allan Keen, the angels representative on PlusOne's board.
The Winter Park investment group is just one of at least nine local angel bands that have emerged in the past several years, meeting formally or informally to pool money and invest in local startups. Two new angel funds formed in Florida in the last year with more than $1 million each to spend on both initial funding and later-stage expansion.
The angel trend has served several ends: For the investors — typically, high-net worth individuals who have retired with bushels of cash and time on their hands — the groups provide both an investing alternative and a creative outlet. Many angels ran successful business ventures themselves and typically have a net worth of at least $1 million or an annual salary of at least $200,000.
Angel investors, either as individuals or groups, typically look for entrepreneurs who want to build a company then sell it. For their investment, the angels get a share of ownership, looking for a return of as much as 30 times their initial investment within seven years.
"They love to use their expertise to create cool companies in their communities. It's a way to watch their investment and participate in it instead of reading about it. It can be an opportunity to mentor an entrepreneur or be on a company board," says Marianne Hudson, executive director of the Angel Capital Association, a national organization with five of the Florida groups as members.
Meanwhile, for Florida businesses, angel groups help to mitigate the traditional lack of capital for promising new businesses in the state. "For entrepreneurs, it's the smartest money you can get," says Rhys Williams, president and co-founder of New World Angels, a Boca Raton group. "You could be getting 40 investors committed to your success who use their networks to grow the company and who will help you find the next round of capital."
For entrepreneurs looking for angel money, each network operates in a slightly different way: Most meet regularly to hear presentations from new business owners. Some have a pool of money, while others meet as a group but leave the decision of whether to invest in a company up to individuals. Some charge entrepreneurs fees for making presentations or just applying for consideration. Getting an official introduction to the group by an angel member is a huge plus, but most solicit ideas via the group's website. A few of Florida's angel groups that have come across a high-potential company have engaged in angel group syndication, a practice that allows groups to pool their funds to support larger investments.
In Florida, the oldest angel investment fund is in Jacksonville. Springboard Capital has invested in 12 startup companies over the last decade. The group began informally, a cadre of friends talking deals over sandwiches, and later organized as a fund when 45 members put up at least $50,000 each. The group formed a second fund a few years later. "That fund probably will make its final investment this quarter and is planning the formation of their next fund," says Alan Rossiter, Springboard's administrative partner.
Springboard funds haven't had any big hits — yet. Rossiter says it normally invests between $350,000 and $800,000 in each of its companies. It has exited two of its 12 investments; Rossiter would not disclose its rate of return. Three of its investments failed. The fund still owns equity in eight companies, including AxoGen, a nerve regeneration company, and Grooveshark, an online music service.
"If you are an angel," says Rossiter, "you have to have the tolerance. Our expectation of failure rate is 50%. Our financial return on a fund is heavily skewed by a few strong companies."
For the entrepreneurs, taking on angel partners creates some risk, too — sometimes, in the form of a dozen or more new business partners, each with his or her own motivation, level of interest and biases. Reilly says he's gotten good advice and contacts from his angels but adds that some of his peers have had a different experience. "I hear horror stories about angel investors coming in who don't have experience in your sector of the business world and want to get involved in the day-to-day," Reilly says.
For the most part, angels like to invest in companies whose business they know something about. In Orlando, for example, Catapult Capital has tapped into breakthrough technologies and entrepreneurial deals vetted by the University of Central Florida venture lab and Rollins College. A new fund in southwest Florida, Tamiami Angel Fund, has members with varied backgrounds and wants early-stage, pre-revenue companies with evidence of customer demand or businesses looking to expand.
At least two of the angel groups in Florida seek women-owned business. Go Beyond Network in Naples and Women Angels in Miami, both founded by women, see opportunity in this fast-growing sector. Barbara Boxer, founder of Women Angels, says the economic downturn has proved to be a great time for angel groups with cash to spend. "We are seeing better deals coming to us, in better terms for us because money is so tight."
Others funds prefer to invest?in one industry. A group of Miami angels led by healthcare entrepreneur Mike Fernandez formed the $20-million MBF Healthcare Fund aimed at investing in healthcare startups in Florida.
Sean Christiansen of Catapult Capital in Orlando says his angel group wants to raise awareness that the groups are a viable, local financing source: "Historically, Florida has lost companies because they went to venture capital firms who prefer local businesses, and most of those firms were not in Florida."
These days, startups most attractive to angels tend to be in information technology, web 2.0 and social media, life sciences, medical devices and medical-related software. Williams, of New World Angels, says the most important factor for angels is not the industry sector but the presence of smart managers with experience building a business. "A good manager will find a good enough plan and know how to execute it. That's what angels are looking for."