August, 2002

Wanted: Northern Kentucky Angel Investors

A funny thing happened on the way to the Madison E-Zone’s 2002 Celebration Party.  The E-Zone is Northern Kentucky’s technology business accelerator and we were getting ready to celebrate the successes of our first full year of operations –

• Our portfolio of clients grew to over 20 companies
• Over 50 new high tech jobs were created in our building
• Over 75 business executives volunteered time 
• Awards such as “New Business of The Year” were garnered
• Four of our companies made the list of “Top 20 Techno Companies” in Kentucky

Just as we were about to pop the champagne for all of our success, there was a knock on my door.  In walked one of most promising entrepreneurs, with one of our most promising companies.   He told that they were closing down.  “I still think that we have a great product, we are just out of money,” the entrepreneur said with a smile on his face similar to the one on your face as you thank your dentist after a root canal.

So instead of heading down the hall to the party, I decided to take some time to reflect on what more the Madison E-Zone and Northern Kentucky could have done to give this company and companies like them a better chance of success.       

We all know that there is not much you can do without money.  You certainly cannot start and develop a technology company without money.  Every day the E-Zone staff is asked for help in raising investment money.  We use the following chart as a general summary when we discuss the funding of a start-up company:

*Friends, Family and Founders

The promising company that was shutting down had made it through the “pre-seed” and “seed stages.”  They starved to death seeking “early stage” investment capital.  Providing access to early stage investment capital in Northern Kentucky must be a priority for the E-Zone.  The challenge is that Northern Kentucky does not have a history of providing this much needed investment capital.

“Angels” are the most common source of early stage investment capital.  Angels are “high-net worth individuals” that are not adverse to risk and enjoy the excitement offered by investing in early stage companies.  Angels can be active or passive investors.  Active angel investors bring much more than just money, they bring expertise in the company’s product or market.  In many cases, active angels serve as advisors for the entrepreneur team leading the company, serving as a source of business and industry contacts and relationships vital to the company’s early growth.

Angel investing is increasing dramatically according to the recently published study by The Center for Venture Research.  Their research found that there were 50 angel groups in North America five years ago.  Today, in spite of the “tech wreck,” the number of active angel had grown to 170.  The study found that the over 300% growth was driven by the benefits angel investors obtain from the angel gatherings - social, intellectual, and potentially financial.

What drives this tendency for angels to invest in groups? A typical pattern of angel investing is told in the book Winning Angels: The 7 Fundamentals of Early Stage Investing.  The first time angel individually invests in a company, the individual angel investor loses his/her investment, and then the individual joins an angel group.  The bottom line is that a group of smart people is much more likely to make a better investment decision than one person.  Of course there are exceptions to group investing and successful individual angel investors also exist.

In 2003, the E-Zone will be serving as a catalyst to develop early stage investment capital by promoting angel investing by Northern Kentucky.  Our request to Northern Kentucky is a simple one . . . learn more about angel investing and consider becoming an angel.  Here are some ways to get started:

• Join the Kentucky Capital Network.  Joining this no obligation, no cost network will allow you to review companies that have graduated from Kentucky’s Innovation and Commercialization Center's (ICC) program.
• Attending the Angel Investing Seminar coming up on May 14-15.  This seminar is given  by the region’s leading angel group, The Queen City Angels.  You might be surprised to learn that there are already Northern Kentucky members of the group.
• Learn more about High Bridge Ventures, LP fund.  This fund is being put together by the Kentucky ICC program (of which the Madison E-Zone is a member) and the fund will make early stage investments.  Investors will be eligible to receive a 40% tax credit on their personal Kentucky tax returns.

Please contact me to learn more about any of these items – cbarach@madisone-zone.com or 292-7781.

A knock on my door interrupts my thinking.  “The pizza man is here and we need some money!”   I only find a couple of dollars in my wallet.  I guess I better head down the hall and raise some money.