Heaven sent

Entrepreneur, May, 1999 by David R. Evanson, Art Beroff

They're not called angels for nothing.

Michael Cornelius, co-founder of TV Plus Inc., is a case straight from the annals of entrepreneurship. In the one year he's spent getting his company up and running, he's taken a second mortgage on his house, maxed out seven credit cards and given up a year of salary.

Other than his faith in himself - and in his partner, Greg Hall, 51 Cornelius is betting on America's continuing fixation with watching television, and more specifically, on the fact that the more TV Americans watch, the more they want to know what's on the tube. And the more they want to know what's on, the greater the demand for the kind of weekly TV guide TV Plus is publishing in the Tampa Bay area of Florida. The key to the business, says Cornelius, is high quality but inexpensive production, which allows advertisers to roll out advertising programs with the kind of frequency they couldn't hope to match with that other TV-schedule publication.

Now that Cornelius has all the operational kinks worked out, he envisions wider horizons for his company. "We see a national market for our publication, which we can exploit through franchising," says the 49-year-old entrepreneur.

But, as is often the case, the problem comes down to money. To take the company where he knows it can go, Cornelius figures TV Plus needs $125,000 for working capital and start-up funding for his franchise program. Unfortunately, with only one year under its belt, TV Plus isn't exactly "bankable." "Banks aren't an option," Cornelius concedes.

But neither are the investors at the other end of the spectrum: institutional venture capitalists. The fact is that most institutional investors - if they have, say, $50 million to invest - don't want to shell it out $125,000 at a time. They want to do 10 deals for $5 million a pop.

The middle-of-the-road option - and the one which is best for entrepreneurs like Cornelius - is angel investors. The reasons are simple: Angel investors are numerous and easy to find; they add value to your business and invest for reasons other than economics; and they're often connected to additional money. Angel investors are, perhaps in 99 percent of all situations, right for your business.

NUMBERS GAME

The number of angel investors in the economy is a well-known fact: 250,000 or so angel investors in the United States pump some $20 billion into the nation's businesses each year, yada, yada, yada. Where this number takes on real significance, however, is in comparison to the alternatives. For instance, Pratt's Guide to Venture Capital Sources, the bible of institutional venture capital, lists more than 1,300 venture capital firms. But of this august congress, only 14 percent or so indicate a willingness to invest in early-stage firms.

Among investment bankers who do initial public offerings (IPOs), the numbers are even more discouraging. For instance, the Securities Industry Association, the big trade group of investment banks and brokerage firms, boasts almost 800 members. In truth, however, only a small fraction of these firms will even consider an IPO. An even better indication of the state of investing is provided by the Regional Investment Bankers Association (RIBA), a trade group consisting of regional and boutique brokerage firms that typically underwrite offerings of $5 million to $20 million. Of RIBA's 150 members, perhaps half originate and underwrite IPOs, with the rest acting as brokers and market makers. So what's left? About 75 investment bankers that will consider IPOs for emerging-growth companies.

So where should Cornelius spend his precious time looking for capital? Among the handful of finicky investment bankers and venture capitalists who seem predisposed to saying no, or among the 250,000 angel investors who have a wide variety of interests and who are actively looking for deals?

HIDE & SEEK

It's not just that angel investors are the best kind of investors for most private companies; they're also more visible than they've ever been. There's so much wealth in the economy from a robust stock market and 15 years. of IPOs that angels are coming out of the woodwork. The prominence of angels, typically shy about publicity, has grown to such a level that they merited a recent feature article in U.S. News and World Report.

Cornelius admits that although angel investors are everywhere, he hasn't bumped into any yet. But then again, with respect to his search for capital, he's at the beginning of the journey. Fortunately, there are now more formal approaches to finding angels than ever before. Avenues include: universities with active entrepreneurship programs; business incubators; ACE-Net (https://ace-net.sr.unh.edu), an Internet-based matching service; networks affiliated with chambers of commerce; and last, but certainly not least, referrals from such professionals as accountants and attorneys.

MORE THAN JUST MONEY

Another reason angel investors are right for many growing companies is that they often add value to a business. Their experience and expertise can be priceless to those entrepreneurs who are learning the ropes as they go.