Groups work to build ranks of angel investors in MichiganNovember 16, 2010
In the more than six years since they came together, the investors that comprise Grand Angels have collectively put $5.8 million into 16 deals.
Now, at a time when Michigan desperately needs to create jobs, Grand Angels is looking for a few more investors — and preferably a younger generation of investor — who are willing to put their money and time behind startup companies that have great potential.
“We’d like to be able to do more deals and bigger deals, and that means more members coming in,” said Grand Angels President Jody VanderWel, who hopes the angel network can grow from its present roster of 33 investors to 50 within a year.
Getting more deals done by more investors is the goal of not just the Holland-based angel investment group but the Michigan Economic Development Corp. and the Michigan Venture Capital Association.
The groups view entrepreneurship as a key component to reshaping Michigan’s economy. Crucial to that end is increasing the amount of capital available in the state.
And one way to achieve that goal is to convince more high-net-worth individuals in Michigan to become angel investors, either through joining an existing network or forming a new one, Michigan Venture Capital Association Executive Director LeAnn Auer said.
“We know we need more capital here in Michigan. There’s a lot of entrepreneurs, more than ever, seeking capital,” Auer said.
Michigan ranks high nationally in the number of high-net-worth individuals who not only could reap profits but could aid the state economy by becoming angel investors and backing young companies that can grow rapidly, Auer said.
“We need to unleash that somehow,” Auer said. “Eventually, it helps everybody’s own backyard.”
One indicator of the need for more capital in Michigan comes in the association’s annual venture capital report issued each spring. Venture capital firms based and operating in Michigan had $345 million available to invest in 2009 amid a market demand of more than $2 billion.
To become an angel investor, individuals must meet federal guidelines for accredited investors and they need to have a willingness to put much more into a company than their money.
Angel investors serve as mentors, coaches and advisers for entrepreneurs, provide a place to turn in crisis and assist the companies in which they invest in securing later-stage capital, May said.
“You have to have active angels, not just a lot of angels,” he said.
VanderWel cites an adage among angel investors that 20 percent of their work comes in deciding to invest in a company.
“The other 80 percent is working with the company, helping them grow and connecting them with your networks,” she said. “We see ourselves as being part of an entrepreneurship community.”
Key to profitable angel investing is spreading out your investments and targeting businesses with a high growth potential, May said. Out of perhaps a dozen investments, you may hit the proverbial home run once, he said.
Investments that can generate a 20 percent to 30 percent return on investment, and in companies that can generate as much as $30 million in sales within five years, are needed to offset the low returns and those that fail to work out as hoped, May said.