Working with Angels

Central Texas Angel Network means business for those with mid-level funding needs

 By Steve Habel

When it comes to funding a company that is in the midst of its growth stage and has a product that is proven and ready to hit the streets like a ball of fire, many entrepreneurs take too big a piece of the pie and turn to venture capitalists.

That means the curve for success may be too tight for a real return on revenues, making life at a survival stage a lot more hectic.

To make things a little easier, the Greater Austin Chamber has helped develop the Central Texas Angel Network (www.centexangels.org) a group of investors each with a net worth of over $1 million that wish to invest in startup and early-stage companies.

“I am sorry to say that many companies here in Austin have been hurt by using venture capitalist rather than angel investors to fund their products and ideas,” said Jamie Rhodes, chief executive officer of Perceptive Sciences and founder of the Central Texas Angel Network (CTAN). “Many entrepreneurs would be better off with a $1 million dollar investment and a revenue target of $20 million than with investment and targets 10 times that size.”

With support from the Chamber, Rhodes founded CTAN in July of 2006, and the Angels have already invested about $2.7 million in eight different entrepreneurial ideas, all from companies based in Central Texas. CTAN is designed to organize the Angel community and develop a process around business plan submissions.

“Austin was in need of a cohesive angel investor network,” Rhodes said. “In conjunction with the Chamber, we looked at other cities’ angel networks, including Houston, and formed the CTAN to benefit Austin’s entrepreneurs and angels, who had been without such a network since the tech bust at the end of the last decade.”

CTAN is based in Austin and is a not-for-profit corporation dedicated to providing quality early-stage investment opportunities for accredited Central Texas angel investors, and to assisting, educating and connecting early stage growth companies in Central Texas with information and advisors for the purpose of raising money and assisting in their growth. The network maintains relationships with business schools from regional universities, trade organizations for area industries and other interested sponsors.

“Our mission is to provide quality seed-stage investment opportunities for accredited Central Texas angel investors,” said Hall Martin, CTAN’s executive director. “A byproduct of this will be economic development for Central Texas and the state by helping emerging companies grow to profitability and/or grow to Venture Capital-scale investments.”

The network acts solely as a facilitator of the investment process, providing members with a method by which members may meet, view, analyze and monitor investment opportunities. Entrepreneurs who need capital and expertise to build their businesses can benefit from this unique funding option.

CTAN seeks business plans meeting a certain submission criteria: the deal must be Texas-based; total funds raised can not exceed $2 million; and, the deal must be complete or a near complete product or service offering.

CTAN offers an additional benefit to the entrepreneurs and young companies in the technology industry and non-technology sectors. By creating a network of high-net worth individuals in Central Texas who are looking for investment opportunities, CTAN works with the Central Texas Regional Center of Innovation and Commercialization (CT-RCIC), the Texas Technology Fund and the universities to identify opportunities in early stages of development.

Angel investors fill funding gaps from $200,000 range up to $2 million. “There is a misconception about the way things get started as far as funding goes,” Martin said. Venture capitalists get all the press, but the majority of the funding is done on the bootstrapping, friends-and-family and angel-investing levels.”

A lot of people think of Angel groups as for use for tech companies only, but such investor groups have evolved because they had to. “We have a diverse group of Angels and they bring in deals from a wide rage of industries,” Rhodes said.

“The diversity of industries is by design because of the volatility of the tech market,” he added. “Austin is a much more diverse economy that it was 10 years ago, and we see deals from across the spectrum. We wanted a network that lasted if one set of industries had an economic setback, like the tech market did in the past. We got a critical mass of Angels together in 2006, and we are going strong.”

CTAN gets Angels and entrepreneurs in the room together and makes things happen. Four presenting companies each quarter get through the screening process and half of those get funded. CTAN also has relationships with other state Angel Networks, so if they can not fully finance a deal, they can go to one of the other groups and vice versa.

The network has created an entrepreneur training program in conjunction with the Austin Technology Incubator that can be attended at no charge to learn about the process.

“The idea for the entrepreneur is to make sure that their program is as strong as it can be because there are 20 to 30 deals we look at each quarter, but only four are chosen,” Martin said. “What we see is that people bring their deals to us too quickly and before they are ready. Those may be good ideas, but they aren’t as ready as some of the ones that are chosen. We look for products that have a following, and that can take the funding and run with it, and companies that have good organic growth.”

For more info on the Central Texas Angel Network, go to the group’s website at centexangels.org.

CTAN Screening Meetings submissions deadline is as follows. Interested parties must submit their business plan before these dates to be included in the presentation meeting one month afterwards. There is a charge $250 per plan submission.

CTAN is also welcoming new Angels to their group, but membership is open to accredited invetors only. In order to join the network, an individual must qualify as an accredited investor, have relevant investment experience or be interested in learning from their peers, be willing to pay $1,500 annual dues and agree to the CTAN Rules of Membership and Conduct and Membership Agreement.

To establish a broad base of support, CTAN seeks members with particular expertise, such as biotech or energy, a background in industries or markets with strong growth potential in the region, a diversity of business focus and a willingness to commit capital (with an expectation of investments in the $25,000 or greater range).

Benefits of being an Angel include: access to quality and screened investment opportunities (as entrepreneurs/technologies/business plans are peer reviewed); the opportunity to co-invest with highly qualified angels; networking with other accredited local investors; and, occasional access to deals from sister organizations such as the Houston Angel Network, which can offer access to technologies and industries beyond those commonly found in Central Texas.