Angel networks: women tap into heavenly investors

Black Enterprise, July, 1995 by Carolyn M. Brown

Many small businesses are started on no more than a wing and a prayer. Others receive more direct help from heavenly people called angels. Not Gabriel and his friends; these angels are private investors who provide entrepreneurs with seed money and expansion capital.

Angels are usually successful, wealthy businesspeople who invest in a young, growing business instead of putting their money in, say, the stock market.

Increasingly, several business organizations and universities are creating networks of individual and institutional investors interested in hooking up with like-minded business owners. And many of these angelic investors are looking specifically to do business with women and minority entrepreneurs, says David Gerhardt, executive director of the Capital Network in Texas. The organization has a national database of some 300 angels and 1,000 business owners.

Most angel networks operate pretty much the same, generally providing a kind of matchmaking service. Entrepreneurs supply short profiles, including a business plan, executive summary and financial projections. The profiles are then categorized, based on the company's industry, size and capital needs. The angels or investors also submit profiles, describing their investment interest and selection criteria.

If that investor likes what he or she sees, then the two groups meet. At this point, the networking organization steps aside. Negotiations are now made between the two parties and their lawyers to determine how the deal should be structured. Transactions run anywhere between $20,000 and $1 million.

"Investors are looking primarily to make money, but they also realize this is risk capital and that they are taking a gamble," says Gerhardt. Still, most angels are hoping to net a 300% return on their investment over a five-year period, he adds. "So, a company needing $50,000 would have to show how the investor would make $150,000 back in five yers. One way to achieve this might be to go public."

Angels are a great alternative capital source for women business owners, says Virginia Kirkpatrick, director of financial services of the National Association of Women Business Owners in Washington. The organization created an angel network last year to help female entrepreneurs who needed expansion capital. Essentially, individual women business owners agree to finance other entrepreneurs (investors often specify the amount of money they are willing to part with).

Many networks are computer-based, and therefore charge an access fee. For the business owner, this ranges anywhere from $35 for six months to $350 for a full year. The ante is raised for institutional investors--from $200 to $1,000. However, the fee only gets you into the system and the number of angels is still low.

There are also no guarantees. Just because you manage to get into an angel network doesn't mean you will automatically get the capital you need.