From the November 1999 issue of Startups

Angel networks are forming in locales around the country to identify small businesses worthy of financial blessings. From informal breakfast groups to broker-forged entities, these networks fill a need among high-tech start-ups that have exhausted their personal financial resources--family, friends, credit cards--but don't yet qualify for venture capital funds. However, the operative term here is "high-tech," virtually a universal condition for this type of angel funding.

AngelMoney.com (http://www.angelmoney.com), an angel network in San Diego, is one such entity. It's made up of a group of private individuals who invest their own money, in amounts ranging from $50,000 to $500,000.

"There are more than 60 groups like this operating in the United States, and many more around the world," says Chuck Teel, co-founder of Business Angels International (http://www.equityinternational.com) in Portage, Indiana. The 2-year-old company publishes The International Directory of Venture Capital Networks and Business Angel Networks 1999 (U.S. edition, $39.95, available at the Web site).

Another breed of angel network is emerging among structured firms. Like securities firms Spencer Trask & Co. in New York City and StoneGate Partners LLC in Boston, more and more financial consultants, merchant bankers and other executives are forging angel networks. StoneGate, for example, assembles groups of 10 to 15 angels to invest in high-tech/high-growth businesses in New England.

"These are smaller companies that have outgrown the capabilities of individual angel investors," notes Kenneth Wolfe, StoneGate's managing director and co-chairman. The broker-dealer considers privately held companies with a proven track record and significant growth potential fueled by technological change, preferably at a point where product development is complete and funding is needed to ramp up production and expand sales and marketing. When such an investment opportunity is identified, StoneGate arranges financing of $3 million to $5 million in expansion capital in return for a 20 to 40 percent equity position for the investor group.

Finding structured angel networks takes detective work; you can research firms online or contact brokers and ask if they are involved with or know of any angel networks.


Freelance writer Paul DeCeglie(MrWritePDC@aol.com) is a former staff reporter for Journal of Commerce and American Banker.

Save Now, Play Later

You probably could afford to eat out more often than you do, splurge on luxurious vacations or move into a nicer place in a better neighborhood. But if you're like most people your age, chances are you've decided to sacrifice in all three categories in order to set the savings aside for retirement.

Far more savings-conscious than past generations, Americans 34 and under are preparing for retirement earlier than ever before and with an unmatched zeal, according to a survey by Roper Starch Worldwide Inc., sponsored by Lincoln Financial Group and Money magazine.

According to the survey, nearly two-thirds (64 percent) of Americans aged 18 to 34 are saving for retirement. Almost half (44 percent) began saving for retirement before age 25, and 18 percent before they hit 20. In contrast, more than one-third of current retirees didn't start saving or investing until they were more than 40; the average baby boomer started at age 27.

In general, 18- to 34-year-olds believe it's important to sacrifice immediate pleasures to achieve long-term goals. To save money, 45 percent are willing to eat out less, 44 percent to invest aggressively, 33 percent to cut back on vacations, 32 percent to buy less-expensive housing, and 25 percent to take a second job. People tend to become less willing to make such sacrifices as they age, the survey indicates.

Despite their efforts, 62 percent of 18- to 34-year olds are concerned that they are not saving enough, tying them with baby boomers (61 percent) as the generation most dissatisfied with their overall rate of savings. (Only 35 percent of retirees expressed dissatisfaction.)

Uncertainty about the future of Social Security is fueling the concerns of the younger generations, suggests Jon Boscia, president and CEO of the Lincoln Financial Group of Companies (a subsidiary of Lincoln Financial Group) in Fort Wayne, Indiana. Says Boscia, "The rules have changed as the outlook for both Social Security and Medicare has deteriorated."

The survey also reveals that 62 percent of respondents aged 18 to 34 agree with this statement: "One of my biggest goals in life is to have a lot of money." Agreement with this statement declines consistently with age; only 27 percent of those 65 or older concurred. People over age 65 also expressed a high degree of financial contentment: 79 percent of retirees say they are financially comfortable, even though many manage on 50 percent of their pre-retirement household income--an amount less than the two-thirds of the pre-retirement income recommended by most financial advisors.

Time To Propose

By George M. Dawson

Q:We are going for outside financing. What format do you recommend for our proposal?

A:That's the wrong question. Concentrate on content, not format. Regardless of format, all financing sources require detailed answers to seven questions. For the first four questions, your answer is the same for all financing sources: ?.How much money do you want? 2. What will you do with it? 3. Why do you need our money to do it? 4. Why is this loan/investment good for your company?

For the last three questions, you answer differently for a lender than an investor: 5. When will you pay us back? 6. How will you pay us back? 7. What happens if something goes wrong?

1. How much money do you want? Show the number immediately. Why waste time if your needs aren't a good fit with the financing source? Be exact. Don't low-ball or pad. Neither strategy works. You'll lose credibility if you're exposed.

2.What will you do with it? Buy assets, pay for revenue-creating expenses, buy out an investor or retire other debt? Include a legal description of real estate, total history of debt to be refinanced, number of units to be added to inventory, software costs, research and development budgets, contractor bids, or anything else relevant to your reason for seeking the loan. Banks don't like to make "unproductive" debt consolidation and equity buyout loans.

3. Why do you need our money? If the funds are to fix a problem, is it a good problem, such as sales growth, or a bad problem, like inefficient management of receivables? With a bad problem, include your solution to fix it so it doesn't happen again. No one wants to finance an inefficient or uncontrolled business.

Answers to the last four questions will appear in next month's column.

George M. Dawson (gdawson@txdirect.net) is a small-business consultant and author of Borrowing to Build Your Business: Getting Your Banker to Say "Yes" (Upstart Publishing, $16.95, 800-235-8866). E-mail your questions to bsumag@entrepreneurmag.com

A Loan That Fast?

You can now apply for a business loan online and be approved (or rejected) in less than a minute and in the comfort of your own office. If approved, you then have the luxury of shopping the same Web site for the best rates and terms among participating lenders. It's all part of LoanWise (http://www.loanwise.com), a new online loan center designed specifically for entrepreneurs.

Small-business owners needing anywhere from $5,000 to $100,000 simply sign on and fill out a short loan application that takes less than five minutes to complete. You need not produce tax returns, annual reports or your first born. Your application is processed immediately--free of charge--and you receive an answer within seconds.

LoanWise--with lending partners that include American Express, Irwin Union Bank, Bank of Hawaii and Security First Network Bank--wasn't making start-up loans when operations began last summer. However, the company expects to offer such funding by year-end.

The online loan service was launched in a strategic alliance between NetEarnings Inc., an Internet-based small-business finance company in Burlingame, California, and Fair, Isaac and Co. Inc., a San Rafael, California, firm known for its pioneering work in credit scoring. The two firms previously introduced CreditFYI.com, a service that provides instant business credit reports over the Internet.

Contact Sources

Lincoln Financial Group of Companies, http://www.lfg.com

StoneGate Partners LLC, (617) 330-9009