Angel Investing

It’s An Increasingly Important Part Of Today's Business Landscape

By:Capacity Magazine

Issue:Spring 2014 : Features



When a new Broadway show is proposed, the all-important hunt begins for wealthy individuals willing to furnish the money needed to stage the show. In theater lingo, such highly prized investors are called “angels.”

In 1978, William Wetzel, then a professor at the University of New Hampshire and founder of its Center for Venture Research, completed a pioneering study on how U.S. entrepreneurs raised seed capital. Wetzel borrowed the term “angel” from >Broadway and used it to describe private individuals who supported entrepreneurs in need of capital. The term stuck and today is widely used.

Angel investing is an increasingly important part of today’s business landscape. It fills the gap in start-up funding between “friends and family” (sometimes humorously given the term FFF, which stands for “friends, family and fools”) and formal sources of venture capital.

 The Center for Venture Research estimates that total angel investments in the United States in 2011 were $22.5 billion, an increase of 12.1 percent from 2010 when the total was $20.1 billion.

Perhaps not surprisingly, California’s high-tech Silicon Valley is the destination of a huge share of today’s angel investment dollars. Startup ventures in Massachusetts and other New England states also draw a large share. But angel investing is now at work in virtually every corner of the nation – including West Virginia.

In 2011, the West Virginia Jobs Investment Trust led an initiative to create the West Virginia Capital Access Program (WVCAP).

WVCAP is designed to equip startups and small businesses with the capital they need to invest, expand and create jobs. The state-run program has access to $13.1 million through the State Small Business Credit Initiative, created under the federal Small Business Jobs Act of 2010.

In just 22 months, the WVCAP program has enabled the retention of 481 West Virginia jobs and the creation of another 361 potential new jobs within the next 24 months.

In recognition of the program’s success, TechConnect West Virginia honored it as the first recipient of the “Investor Recognition Award” at its recent first annual Spirit of Innovation Awards event.

Anne Barth, the executive director of TechConnectWV, has termed the WVCAP program “a model of what can be achieved if more funding is available to support new ventures or growing small businesses. It also offers an opportunity to explore the ingredients that made it so successful.”

Foremost among those ingredients is a collaborative approach taken by the program’s eight partners.

In addition to the West Virginia Jobs Investment Trust, the program’s partners include INNOVA, the Mid-Ohio Valley Regional Council, the Natural Capital Investment Fund, the New River Gorge Regional Development Authority, the Wyoming County Economic Development Authority, the Regional Economic Development Partnership, and the Council for Rural Health Development.

A similar collaborative approach is also at the heart of a statewide angel investment fund, West Virginia Growth Investment, LLC.

The new fund was announced by Gov. Earl Ray Tomblin, Appalachian Regional Commission federal co-chairman Earl Gohl, West Virginia Commerce Secretary Keith Burdette and Tom Haywood, vice president of the Discover the Real West Virginia Foundation and managing partner of Bowles Rice, LLC, at a Nov. 5 news conference in Charleston.

Backed by a group of West Virginia investors, the new fund will provide financing for new small businesses, product innovation and expansion of existing businesses, along with a host of mentoring, training and employee recruiting services for developing companies.

Small businesses make up 90 percent of the businesses in West Virginia, Tomblin said.

The fund, Tomblin said, will enable West Virginia entrepreneurs to “take their ideas and make them grow. It’s West Virginians helping West Virginians. It’s a way of having a whole new array of possibilities for people who want to start a business in West Virginia.”

Gohl said the ARC’s studies have shown access to capital and credit in Appalachia is about 18 percent below the national level. As a result, the commission began promoting it in West Virginia and elsewhere in the region.

The fund will be an important new tool in the state’s business development efforts, Burdette said.

Heywood said a network of concerned West Virginians has been at work on an informal basis in recent years, endeavoring to connect entrepreneurs with interested investors. With the network’s activities growing, he said, the decision was made to “create a fund to invest in this rather than just create opportunities for people to invest individually.”

The fund has so far raised about $3 million, and Heywood, who serves as the fund’s vice-chairman, said money continues to come in. He emphasized the fund is 100-percent private. No state tax dollars will be used for its operations or lending.

More information about West Virginia Growth Investment, LLC, can be found at its web site, www.wvgrowth.com