Heaven help us - 'business angels' provide investment capital - includes related articles on finding investors and investment planning

Nation's Business, Nov, 1993 by Dale D. Buss

"There's a dramatic need for angels to find companies they can believe in, and there's a lot of opportunity to make money," says Susan Davis, executive director of Investors' Circle. Members include Peggy Hitchcock, a granddaughter of Andrew Mellon who attends meetings with her trust officer, a senior vice president of Mellon Bank, in tow.

Another angel klatsch is the Breakfast Club, which has met monthly for 23 years at the Nashua (N.H.) Country Club. Members often pool their money and invest about $1 million per venture.

Before the entrepreneur even has a detailed business plan, the group may invest $5,000 to $100,000; second, third, and even fourth rounds of financing may follow.

Members examine about 100 possible deals a year, but they and their affiliates invest in only 2 to 4 percent of them.

Dick Morley and his fellow investors won't meet with an entrepreneur who insists upon bringing a lawyer. "A lawyer makes money working on interference and friction between two parties," he says. "But I'm not their enemy; I'm part of their foundation."

The line between failure and success in angel-entrepreneur relationships is often a fine one. That is part of the calculus of such high-risk arrangements, in which financial disappointment is the most likely outcome. But failure can still be painful and messy, especially for the entrepreneur.

Michael Shattow got angel funding of $600,000 five years ago for his young company, Multitrack, which provided management and cost-accounting software for large computer operations. The investment became $1.2 million as Boston-based Multitrack last year grew profitable with $6 million in annual sales and 50 employees.

When Multitrack needed more capital to develop "client-server" software, "the investors ran out of time and energy and interest," Shattow says. His primary angel was a 94-year-old former furniture dealer "who wasn't looking for a three- to five-year payout." So Shattow, 40, sold out to his investors and is looking for a new venture.

On the other hand, a handful of angels who have invested almost a half-million dollars has kept Richard Ludden, 63, a former computer executive, afloat. For nearly six years his Lincoln, Neb., company, PermaBar Technology, has searched for customers. The firm, which etches universal product codes onto metal, has dealers lined up but no major orders so far.

"Any other type of capital would have left me a long time ago," Ludden says. "It's taken me far longer to get off the ground than I anticipated. But my angels have never put any pressure on me. This has been a good way to go."

Keep The Plan Simple And Specific

Here is what a typical group of venture angels, the Nashua, N.H., Breakfast Club, requires of any new-business plan submitted to it, according to guidelines written by Dick Morley, a member:

* No more than 20 pages, leading with a one-page executive summary. There should be no more than three pages of financial information, including the existing balance sheet, profit-and-loss sheet, and a spreadsheet of budgetary estimates on a quarterly basis of last year, this year, and next year.