Angel Investors offers member choice and focuses on
tech and bio startups
John Wilen Staff Reporter
Are all the angels gone?
Not according to John May.
The New Vantage Group managing partner is starting a new angel investing club that will focus exclusively on making early (read: pre-institutional) investments in tech, telecom and life science startups.
"Real people are writing real checks to come and play," May says.
But the new club, Active Angel Investors (http://www.activeangelinvestors.com), will differ a bit from May's past investment clubs, the Dinner Club, the eMedia Club and the Washington Dinner Club.
Those clubs, formed as the tech-driven stock market bubble reached its height, required upfront investments of as much as $150,000 from each new member. Acting as a single investment partnership, the members of those clubs voted on how to invest the overall pot of money.
With Active Angel Investors (AAI), members pay $5,000 to join half of that is an initiation fee, half an annual membership fee and are free to decide whether to invest in companies on a deal-by-deal basis.
The idea is that the club members only invest their money in deals of interest to them. Their money cannot be invested in a company they don't like by a majority vote of club members.
AAI members who are interested in a company will form a due diligence committee to study the opportunity, May says. Members who decide to invest in a company will do so through an investment partnership formed for that specific deal, he says.
While the financial details of the new club are different, the central feature of the old investment clubs has been carried over: Companies present and face tough questions at club meetings. May is quick to describe the new structure as an experiment, and the result of tough economic times.
After spending much of 2002 looking for investors interested in forming a new pay-upfront dinner club, May determined that "there just wasn't critical mass."
"This was the outgrowth of finding it inappropriate to try to organize Dinner Club IV," May says.
Industry observers hail the new club as a sign that there are investors out there willing to risk money on early-stage investments, even in a down economy.
"It's a good thing," says Jonathan Silver, managing director at venture firm Core Capital Partners (http://www.core-capital.com), who is not participating in AAI. "It suggests that the angel community is stirring again."
"I think that it's very important for people who see themselves as leaders of the tech community to commit to it," says Jonathan Aberman, an attorney at Fenwick & West (http://www.fenwick.com) and a member of the new club. "Lead with your pocketbook."
May says AAI has about 15 paid members so far, and he expects 30 to 40 by spring. The club has held two meetings. Earlier this month, members saw presentations from Pem Technologies, a medical device company based in Bethesda, and E-Learning Dynamics, a D.C.-based education software firm.
Both generated investment interest, and May thinks positive feedback from members means the club will be a success.
Aberman doesn't plan to invest in either Pem or E-Learning Dynamics, but says that's because he's taking his time, and doesn't expect to invest in a large number of companies.
The ability of investors to wait for the right opportunity makes sense to Silver, who suggests that better investment decisions will be made because people will concentrate on areas and technologies with which they're familiar.
"It may be a more sustainable model than the earlier one," Silver says.
'Better than the average fund'
The minimum aggregate investment AAI will consider is $250,000. Members are free to invest less, or go outside the structure of the club, but then they're responsible for all of their own due diligence, management and costs.
Investing through AAI gives members access to New Vantage Group's management resources, but costs them, as well. New Vantage (http://www.newvantagegroup.com) will manage AAI investment partnerships for an annual fee of 2 percent of committed capital over a minimum of five years a total of 10 percent payable at the time of investment.
New Vantage will receive 20 percent of the profits from any AAI investments.
May says AAI's pre-screening committee is reviewing 50 to 100 business plans a month. He expects most investments to fall into the $250,000 to $750,000 range.
May does not expect AAI to compete with the other dinner clubs, which still have money to invest and which focus on later-stage investments, usually in conjunction with venture capital firms. He believes both types of clubs have as good a chance to succeed as any venture firm.
"In tough times, we think that the dinner club companies
have done better than the average venture fund," May says, before cautioning, "but it's still to be determined."
2003 American City Business Journals Inc.