Friday, July 25, 2008

Angels flock as VC industry evolves

By Jay Rizoli, Special to Mass High Tech

Ask an angel investor about the state of angel investing nowadays, and he’ll probably tell you it’s pretty much as it’s always been. Except in the ways that it’s different.

Yes, the definition is the same — a wealthy individual investor who provides his or her own money as capital for a startup while seeking a high return on investment — and the reasons they do it are the same. However, the way they get the job done has evolved quite a bit, even in the past decade.

Industry figures put the number of active angel investors in the United States at more than 230,000 and the number of angel groups — which evolved to share deal flow, jointly perform due diligence and pool available cash — at more than 300.

Among them, is Lexington-based CommonAngels, an angel group of 75 members with more than 50 fields of expertise and a pair of co-investment funds, that celebrated its 10th anniversary last month. Some members discussed how angel investing has evolved.

“It’s much more structured and formal than 10 years ago,” said Joe Caruso, a self-described “advocate for entrepreneurs” who has served as mentor and adviser to companies as well as interim CEO and investor. “There are, I think, 15 angel groups in New England. Ten years ago that was unheard of.”

That surge has been fueled by the passion of individual investors and opened new doors for entrepreneurs. Angel groups expose investors to opportunities they may not have found on their own, and enable them to hand off investment possibilities to other members for whom an opportunity may be a better fit.

“I don’t know if there’s a single definition” of an angel investor, said Paul Birch, a 20-year technology veteran and chairman of CommonAngels, “but I think it’s people who have been successful in their chosen careers and feel it’s not just about the money but about knowledge and contacts, being able to spend time as advisers, sitting on the board and using their experience to help them grow.”

Caruso, a director and investor in Boston MicroMachines, Nimbit and i2Chem, said he has been drawn to the mentoring side because of his own early experiences as an entrepreneur going it alone.

“You’ll find that motivations will vary and priorities vary from individual to individual,” said Chris Sheehan, a managing director of CommonAngels and its two $10-million venture funds. “It’s a high risk and there’s a return to be had. A lot of angels are former successful entrepreneurs and it’s in their blood. It’s mentoring, coaching, sort of a giving-back appeal.”

Of course, while it isn’t just about money, it is primarily about money; most angels say they enjoy helping to launch promising companies and giving back to the entrepreneurial arena, but altruism doesn’t put food on the table.

But with $140-a-barrel oil, the credit crunch, the housing crash and a contentious presidential contest, are the entrepreneurs — and the money — going to be there? The angel investors say yes.

Sheehan points out that the developmental timeline of the companies they invest in tends to outlast current economic trends.

“You’ve got to have a long-term view. It takes time; it’s not a quick flip at all. In five to seven years we’ll be in a different economic picture,” he said.

Jay Rizoli is a freelance writer in Franklin.