Hungry for cash, start-ups seek better angels for their ventures
About a dozen years ago, Robin Chase invited Jean Hammond, a friend from business school, over to her Cambridge home for dinner. “I’d just sold my company, and Robin was pulling on my sleeve — she just wanted me to listen to this idea,’’ Hammond said. Chase’s concept was to build a fleet of cars parked in city neighborhoods that customers could rent by the hour.
“I said, ‘I’ll write a check on the spot,’ ’’ Hammond remembers, despite the fact that Chase had yet to procure a single vehicle or find her first customer. Today, the company Chase founded, Zipcar Inc., has a fleet of 7,000 vehicles and more than 400,000 members in the United States, Canada, and Britain, and it could go public as soon as this year.
In its earliest days, Zipcar was “so out of the box that most venture capitalists couldn’t get their head around it,’’ said Hammond, one of Boston’s most prominent “angel’’ investors. And Zipcar isn’t the only example of a pioneering company that relied on risk-tolerant individual investors as it was finding its feet: Eran Egozy, cofounder of Harmonix Music Systems Inc., said that his Cambridge company wouldn’t have survived long enough to develop the hit video games Guitar Hero and Rock Band if not for patient angels.
In the start-up community, there is a growing sense that Boston would benefit from a greater number of angels, investing more frequently — especially as the number of active venture capital firms shrinks and the amount of money they have to invest drops. (In 2009, venture investment dropped 37 percent to $17.7 billion, according to the National Venture Capital Association. Angel investing, meanwhile, declined about 8 percent to $17.6 billion, according to the Center for Venture Research.)
This year has seen several new initiatives launched with the goal of encouraging more wealthy individuals to consider making angel investments, and in 2009, angel investor Bill Warner announced an ambitious goal: to create 1,000 new angels in New England over the next decade.
Some look to Silicon Valley with a bit of envy; out West, an emerging crop of “super angels’’ pride themselves on making 10 or more investments a year. While most fail, a single Google or PayPal can wipe away the bad bets.
Efforts in Massachusetts to demystify angel investing — and ideally spawn new angels — can only be a good thing. Angel investing is a high-risk proposition, and, said Hammond, “your financial adviser always tells you it’s a really stupid idea. The stock market, in their view, is always safer than putting money into start-ups.’’ (To become an accredited angel investor, you must have a net worth of at least $1 million, and pending legislation will exclude the value of your primary residence from that calculation.)
But even with little or no financial return, the psychic payoff of helping the next generation of entrepreneurs can be worth it, said Steve Kane, an entrepreneur who sold an online games company in 1999 for $207 million. “I’m a big believer in karma,’’ he said. “So many people helped me along the way that I feel like helping others in similar situations. And it’s intellectually rewarding.’’
Fresh from a trip to meet with West Coast angels, Avid Technology Inc. founder Bill Warner concludes that “we don’t have anyone locally who is doing high-velocity investing, and that is what is happening in California.’’ How does he define high-velocity? A dozen investments a year, at about $100,000 each. “When you do a smaller number of deals, it’s statistically tough to get a big hit,’’ Warner said.
But John Landry, a former Lotus executive and prolific angel, said, “The metric shouldn’t be the number of deals you do, but the successful deals. We shouldn’t be fueled by a competitive zeal to beat the Valley boys and girls.’’
Jon Pierce, a founder of Betahouse, the Cambridge group workspace, is planning a daylong “Angel Boot Camp,’’ on June 1 to encourage others to ascend to angelhood by inviting those who’ve already earned their wings to talk about what they’ve learned.
“We all recognize that there really should be more start-up activity in Boston,’’ Pierce said, “but to take more swings, and get more home runs, you need the money to do that.’’
Pierce believes that often, individual angel investors can make decisions more quickly and take bigger risks on an unproven idea than the organized angel groups, of which there are about two dozen across New England. “Sometimes, angel groups can act like venture capitalists, only with smaller checks,’’ he said. “It can be a protracted process.’’
Most angel groups, however, make it part of their mission to recruit and educate new members. At Golden Seeds Boston, a group of about 25 female angels who invest only in female entrepreneurs, the first hour of each monthly meeting is devoted to a topic like conducting due diligence or the responsibilities of serving on a board of directors.
“We welcome new people to come and sit through a few of our meetings,’’ said Anita Brearton, one of the group’s leaders. “There’s no hard sell, no pressure.’’ And twice a year, the group conducts a half-day “intro to angel investing’’ seminar.
The New England chapter of the Angel Capital Association, a trade group, started running a series of seminars for new investors in January, each of which has attracted between 30 and 50 people, said James Geshwiler, managing director at CommonAngels, a Lexington-based angel investing group.
While conferences and seminars may help bring a few new participants into the local angel community, or encourage dabblers to invest more steadily, there’s one thing that will reliably produce flocks of new angels: successful companies that create new wealth. And while Boston has seen some decent acquisitions and IPOs over the past five years, those deals don’t seem to have created a new generation of angel investors — yet.
“That is a concern,’’ Geshwiler said.
Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner. 
