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Angel investors boost promising businesses Tuesday, February 6, 2007 The group, formed last year, has already received applications from 90 companies. Countless cities would love to have the wealth of entrepreneurial resources that Kansas City offers. However, until last year, an important piece was missing — a local group of angel investors who could infuse capital into promising new business. Mid-America Angels was formed in March to fill that void. "There was some angel investing going on in the city, but having a formalized angel group here is a new thing," said Marianne Hudson, director of angel investment for the Ewing Marion Kauffman Foundation. "We really have made a lot of progress in less than a year’s time." Joel Wiggins, president and chief executive officer of the Enterprise Center of Johnson County, helped form the group, which is managed jointly by the Enterprise Center and the Lawrence Regional Technology Center. The concept behind angel investing is to match investors seeking high rates of return with companies that show promise for rapid growth. The stakes are high on both sides, Wiggins said, which is why membership requirements are stringent. Investors must demonstrate a net worth of $1 million or more or an annual income of $200,000 if filing individually or $300,000 if filing jointly. Members pay a $1,000 annual membership fee, which covers administrative expenses. They expect a return on investment that is in line with the risk they take. "The number-one thing investors are looking for is a business that can grow rapidly enough and has a big enough market that they can be sure they can get their money back," Wiggins said. "One angel said in a public session that he likes to get about 40 percent return on his investments each year." That type of expectation limits the number of companies that qualify for angel investing. Businesses that attract angel investors usually share several traits: • High-growth concept. "It must be a very promising idea that has some way to protect itself in the marketplace, such as patented technology," Wiggins said. "The business must be able to generate million of dollars in revenue over time — not tens or hundreds of thousands, but $40 million or $50 million in three to five years." • Sweat equity. "Investors want to make sure you are leveraged or are committed to the business," he said. "They want to be sure the entrepreneur is in really deeply and is committed to making it work." • Outstanding leadership. "Angel investors are betting on people," Wiggins said. "Can this person execute the business plan with confidence and get it done? Can they take the company to the next level? If investors put a half-million dollars into it, they want to know that the money will be used wisely." • Humility. "Investors may want a seat on your board," Hudson said. "You have to be willing to give up some ownership of the company and also be willing to be mentored." Mid-America Angels has plenty of room to grow and is looking for additional investors and for qualified businesses, Wiggins said. The group has 24 members, with a goal of adding 25 angels by the end of the year. Ninety businesses have applied for funding since the group was formed, and six of those are now in due diligence for possible investment. As word about Mid-America Angels gets around, Wiggins is seeing the region live up to the expectations he had when he moved here from Austin, Texas, 18 months ago. "People now are starting to come to us," he said. Mid-America Angels Copyright © 2007 The Kansas City Star
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