Angel investors help start-ups get off the ground
Hopeful entrepreneurs are familiar with the concept of the “Three Fs”: Family, Friends and Fools. Small investments from this alliterative triad often constitute the start-up capital for early stage businesses. Recently an organization of experienced investors formed in Vilas County, adding a new investment option for entrepreneurs in northern Wisconsin. Northwoods Angels, a part of the larger Wisconsin Angel Network, is looking for high growth opportunities that will bring business and jobs to Vilas County and surrounding areas.
The idea of “angel investing” initially came from Broadway, where individuals who contributed money to theatrical productions were referred to as “angels.”
The term was borrowed in the late 20th century to describe a new type of investor. Angel investment groups help to provide start-up capital for young companies, but their involvement in their chosen businesses goes beyond their initial investment.
Most angel groups are comprised of several investors, usually between 10 and 100, who are accredited by the Securities and Exchange Commission. Along with capital, these angel investors are able to provide guidance stemming from years of personal experience in businesses of their own.
Providing a possibility for both investment and assistance in the early stages of creating a successful business, angel groups seem like a godsend for budding, inexperienced entrepreneurs, but there remain the problems of access and finding the right investment group. To help remedy these problems, many of Wisconsin’s angel groups have formed the Wisconsin Angel Network. The WAN is a system that connects dozens of the state’s angel groups to entrepreneurs looking for investors.
“You can think of me as an air traffic controller,” says Dan Blake, director of the WAN. “I am not one of the investors, but entrepreneurs with a good business plan need a good team to put them in contact with investors, and that’s what we do.”
Venture capital can provide a major boost, particularly for startups with high-growth potential. At their best they can provide strong investors, experienced, helpful board members and media exposure, among other things.
However, not all venture capital firms are uniform in their composition or their mission, and many will not provide all these services. The relatively recent advent of crowd-funding on websites such as Kickstarter provides another new option for raising start-up capital. Blake says that these can be great sources for new companies, but stresses how angel groups differentiate themselves from other funding sources. “What angels bring that people in a crowd cannot is a respected, visible level of expertise. And they can play an advisory role by helping to hire new people, develop customer contracts, track leads, et cetera.”
One of the WAN’s experienced investors is Dick Leinenkugel, who in 2010 helped to form the Northwoods Angels, an angel investment group located in Eagle River. Many angel groups are formed with a goal in mind, such as promoting companies in a specific industry. The Northwoods Angels are no exception.
“What is unique about our group is that we all have a tie to Vilas County, either as residents or because we visit the area, and so we all want it to succeed economically.” Leinenkugel grew up in the Chippewa Falls area, but now has a home in Vilas County. “Where we differ from other angel groups is we’re not looking so much to cash out on a five- to seven-year return on our investments. Our interest is in bringing business to the area.”
The Northwoods Angels group was created by Leinenkugel and a few other members of the Vilas County Economic Development Corporation, a group that was already invested in the Vilas County economy. Their inclusion in the WAN provides them with the benefit of receiving updates on investment opportunities around the state and access to some statewide entrepreneurial conferences like the Wisconsin Early Stage Symposium, held recently in Madison, where early stage businesses are able to pitch their plans to a large group of diverse investors.
This Vilas County group is one of only a few angel groups north of Marathon County, and the only one in the northeastern part of the state. The inclusion of a group in the Northwoods makes sense for the WAN, says Blake. “We see an opportunity in all parts of the state for innovation. So there are companies all the way up on the shores of Lake Superior and everywhere in between that are innovative and focused on growing and bringing new economic development to Wisconsin. So we want to try to support that development, whether it’s in Ashland, Rhinelander or Milwaukee.”
The member-supported WAN does not charge for its services, and those interested in finding angel investors can submit their executive business plans into a software platform at WAN’s website, from which it will be sent to all network members. This means that even groups in the Northwoods could potentially find capital from an angel group in Milwaukee or other parts of the state.
“Angel investors are generally looking for high-growth opportunities,” says Blake.
Leinenkugel describes in plain terms how to best go about getting the support of an angel group. “The main thing is to have a solid business plan with pro forma projections with a budget, a profit/loss plan for maybe three to five years and show that the company is fulfilling a solid need, whether it’s a business service or something they’ll produce themselves. It’s got to be based in reality.”
The Northwoods Angels recently made their first investment in Deep Freeze Fishing. The company makes custom ice fishing equipment and recently moved to Eagle River from Rothschild.
Despite the impact angel investing can make on an early stage business, it seems to be a fairly well-kept secret. “I would say probably not a lot of budding entrepreneurs are aware of this,” says Leinenkugel.
Now in its tenth year, Blake says the WAN is looking to change that by expanding the network’s reach. “We’ve been working on some new groups around the state, so we’re hoping to push that forward. We’ve seen some great growth recently, so we’re feeling pretty bullish on early-stage opportunities in Wisconsin.”
The Wisconsin Angel Network has been used as a model for similar organizations in other states. Early stage executive business plans can be submitted at wisconsinangelnetwork.com, and Northwoods entrepreneurs can offer opportunities directly to the Vilas County Economic Development Corporation, vilascountyedc.org.
Matt Persike lives in Rhinelander. His articles have also appeared in Living on the Lake magazine and the Star Journal.