May 1, 2008

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Forging a Path Along Utah's Corporate Trail

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Guardian Angels

Angel Investors Can be Heaven-Sent for Your Startup

Jamie Huish Stum

May 1, 2008

In summer of 2003, BYU student David Bateman won two business plan competitions, which put $75,000 in his pocket to start his business. His company, Property Solutions, was developing software to automate all of a property management company’s transactions, and Bateman soon discovered that software is a spendy endeavor. In October 2003, he realized he couldn’t make his payroll and that he needed an angel investor. Angel investors are wealthy individuals who invest in startup companies in very early stages of development. After an entrepreneur has maxed out savings or investments from family or friends to get a business going, angels will make investments between $50,000 and $2 million, says Brock Blake, CEO of FundingUniverse, which connects entrepreneurs with funding sources. Angel groups have increased by 67 percent nationally since 1999, and about 10,000 investors now belong to angel groups nationwide, according to the Angel Capital Education Foundation. Utah boasts about 80 active angels in groups, from the well-known Utah Angels on the Wasatch Front to the newly formed Dixie Angels in Southern Utah. Groups allow angels to check out more deals and to take advantage of different members’ expertise. Typically, an angel group is made up of about 10 or 15 members, often former entrepreneurs. Most groups require members to be “accredited investors” defined by federal securities laws as a person with an individual net worth exceeding $1 million at the time of investment, or having income exceeding $200,000 a year for the past two years. For startup entrepreneurs like Bateman, some local resources can help navigate the world of angel funding. American Fork-based FundingUniverse connects entrepreneurs with those angels investing in a specific industry through its Website (fundinguniverse.com). “It’s like a dating Website for angels and investors, we’re doing the matchmaking,” says CEO Blake. Entrepreneurs post business plans online, then receive scores and feedback from FundingUniverse. Those with high scores can be introduced to possible investors or meet with several angel groups at monthly speedpitching events. “If you send [angels] a business plan and they have no idea who you are, there’s not a lot of credibility there. There’s a much higher chance of getting funded when it comes through a referral or an introduction,” Blake says. Grow Utah Venture’s Website (growutahventures.com) is another forum for entrepreneurs to post a business plan and glean expert feedback. Improved plans are posted on AngelSoft, a software platform for angels, where they can be seen by a number of groups. Grow Utah Ventures also holds networking meetings, workshops and seminars to prepare entrepreneurs to find funding and make a pitch, says Alan Hall, an active angel investor and chairman of Grow Utah Ventures. Selling Yourself Once you’ve connected with the right angel or group, it’s all about perfecting the pitch. Angels are looking for companies that could bring tenfold return on their money, which comes when a company is acquired or goes public. To score these kinds of homeruns, they are looking for companies that can have a national footprint and are selling a compelling product with the possibility to generate $10 million or more in annual revenue. “We’re over here waving our hands saying, ‘Hey, we’ve got money! We want to invest!’ There are quite a few people in the state of Utah who are willing to take a look at new businesses and will put money into new companies,” Hall says. Angels aren’t looking for a 50-page business plan, says Blake. They are looking for an experienced management team with strong presentation skills. Blake recommends having two pitches ready, a five minute “elevator pitch” and a 20 minute story. Companies should also come prepared to show some sort of traction in the marketplace, such as producing revenue, filing a patent or having partnerships with other companies in place. After Bateman pitched to the Utah Angels in 2003, four angels put in a total of $110,000 to Property Solutions, which Bateman says is worth eight times that today. “We feel a real sense of obligation to the people that made this a reality,” he says. “There’s always a voice in the back of my head that says, ‘You need to get these guys a good return on investment.’” Wing Span Angel groups are spreading out across the state to fund Utah’s startups. Olympus Angels — www.olympusangelinvestors.org Utah Angels — www.utahangels.org Dixie Angels — www.dixieangels.com Cache Valley Angels — www.growutahventures.com/toua.asp Top of Utah Angels — www.growutahventures.com/touamain.asp Life Science Angels — www.sllsa.com Park City Angels — www.parkcityangels.angelsoftgroup.net
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