Angel investors offer more than money to entrepreneurs

By Jon Hurdle
Special to Delaware Business Times

A veteran businessman and former state official, Alan Levin puts extra time and money into helping promising startups get off the ground. He’s part of a growing class of financial backers called angel investors, who step in when friends, family and savings don’t make the cut.

“There is a desire for people of our age to assist these startups for angel funding,” said Levin. “We’re not looking to make money on this as much as want to see these things succeed and move forward. We’re
not taking a piece of the pie here.”

Angel investors are typically wealthy individuals who are looking for an acceptable return on their investments and have an appetite for the inevitable risk that comes with backing early-stage startups.

Paul McConnell, a Wilmington real estate executive, is another well-known angel investor behind Delaware’s startup scene. He has backed a series of young entrepreneurs from the University of Delaware’s Horn Program in Entrepreneurship. His hope is that someday graduates will be able to get additional financing for their ideas.

The startup companies that have so far been backed by McConnell include Geoswap, an online platform to build support for events held by interest groups such as athletes or beer drinkers; Tenantu, an internet-based service to make it easier for college students to find housing and pay their rent; and Carvertise, an online program that allows clients to present their advertisements on cars.

Most startups fail, so any angel investor must be motivated by something other than the desire to make money, said McConnell, who typically invests $50,000 in a startup.

“Ninety percent of these companies are not going to make it so you’re really doing it for the community, thinking about the future to give these people opportunities,” said McConnell.

In a state where government and university funding for startups has lagged behind that of some other states and colleges, angel investors are playing an important role in helping to create businesses for the future, McConnell said.

Applicants for McConnell’s funding have usually exhausted other possible sources of finance before approaching him, he said. “By the time they get to us, their credit cards are usually tapped out; mom and dad have got a mortgage on their house.”

Levin, who has also supported startups coming out of the Horn program, said mentorship is at least as important as the financial support.

After some failures as an angel investor, Levin said it’s a risky business, but that hasn’t stopped him from helping people who seem to have the desire and the energy to make it happen. However compelling their business ideas, he said, many entrepreneurs don’t know how to implement them and need the guidance of an experienced hand.

That combination of expertise and financial wherewithal is available in Delaware for entrepreneurs if they can find the right angel, said Levin, who is now an advisor to SoDel Concepts in southern Delaware.

Angels are currently most likely to be interested in business ideas connected with artificial intelligence, business-to-business software as a service (“Saas”’), and augmented reality technology, according to Pedro Moore, executive director of the Delaware Innovation Fund, a nonprofit that provides venture capital to early-stage enterprises.

Moore’s company does not currently provide the smaller amounts of funding – typically between $10,000 and $100,000 – that startups seek from angels, but he argued that there is a lot of wealth in Delaware that’s looking for the right opportunity to invest.

Still, he urged entrepreneurs to tap their own sources of capital before pitching to potential angel investors.

“Sometimes they pitch to us, and they haven’t even put a dime of their own money into the company,” Moore said. “Check your own family and friends; you may already have an angel investor in your personal network.”

Other areas that may be of interest to investors include businesses connected with cryptocurrencies such as Bitcoin, and ICOs, or Initial Coin Offerings, a way of raising money for a cryptocurrency venture without complying with government regulations, said Mike Lebus, founder of Angel Investment Network, a worldwide web platform that’s designed to connect enterprises and investors.

Medical and life-sciences companies are popular with some investors although their appeal is limited by the demanding regulatory process needed to get such products to market, Lebus said.

He argued that online platforms offer a quicker and easier way of connecting entrepreneurs with potential investors than traditional events at which representatives of the two sides would meet face to face, although the latter still exist.

In Delaware, angel investors have been encouraged by the state’s Angel Investor Job Creation and Innovation Act of 2017, which offers a refundable tax credit of up to 25 percent to investors in qualified Delaware-based startups.

“These tax incentive schemes are so important, as they really do work to help encourage investments in small businesses, spur innovation, create employment and boost the economy,” he said.

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