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Highway To Heaven

You don't need to look on high--and low--for angel investors. Try these proven paths.
June 1, 1999
URL: http://www.entrepreneur.com/article/17814

Through the sheer ingenuity of their Internet-based promotional and sweepstakes management service, RealTime Media Inc. co-founder Chuck Seidman and his partners, Bruce S. Allen, Bob Auxier, Peter Jensen and Charles Ruderman, have persuaded some of America's most admired companies to hire them.

The Haverford, Pennsylvania, firm has a lock on the technology for creating scratch-and-win promotions on the Internet (patent pending). Rather than scraping faux gold leaf off of a paper ticket, Internet surfers scratch away with their mice to reveal whether they've won prizes.

As it turns out, the lure of winning $1 million instantly--or, as with the current Beat the Street promotion, $20 million for correctly guessing the close of the Dow Jones and NYSE average on a particular day--is an extremely effective technique for directing Internet surfers to a particular site. "It's all about driving traffic," says Seidman, 47. "Being on the Internet means nothing unless you can get traffic to your site and convert [surfers] into members or give them incentive to take a desired action." Apparently the heavyweights agree, because the likes of Microsoft, Lycos, Ford, Yahoo!, the NFL and CDnow have hired RealTime to create custom instant-win promotions to drive traffic to their Web sites.

All this has been accomplished with the kind of entrepreneurial panache successful companies are made of. Still, Seidman understands that Internet promotion is big business--and his competition is well-funded. "To compete and take this company where we know it can go, we need more capital," he says.

Seidman figures his company needs $3 million, which has him beating the bushes for angel investors. Unlike the promotions he's creating, bringing angels to the table is no game.

For companies like RealTime, raising money from angels, or any kind of investor for that matter, generally is done in four steps: identifying prospects, preparing to contact them, contacting them and closing them. But as with falling dominoes, everything depends on that first critical action. And in this case, entrepreneurs can't possibly hope to finalize deals with angel investors until they succeed in locating prospects.

So where do angels hover? There are a number of predictable haunts, ranging from Internet and chamber of commerce cliques to universities, business incubators and your professional advisors. Here's a rundown on how to get started. (And remember, none of this will be easy, so be prepared to dig hard.)

Cast Your Net

For many people, a starting point in the quest for angels is the Internet. But keep in mind that at this point, the Internet is a communications medium, not a capital-formation medium. It may turn up leads, but it's not going to deliver the goods lock, stock and barrel.

A good first stop is ACE-Net, an SBA initiative that uses the power of the Internet to match entrepreneurs with accredited investors. By listing your deal on ACE-Net, you make yourself known to the thousands of angel investors who have access to the site.

Moreover, according to Jere Glover, chief counsel of the SBA's Office of Advocacy, ACE-Net now offers contact information for 38 so-called nodes that can act as entrepreneurs' connections to angel investors. "Many of these nodes operate their own angel networks," Glover says. Their names, addresses and telephone numbers can be found at https://ace-net.sr.unh.edu. (The "https" designation indicates that ACE-Net is a secure site, with limitations on access.)

You can also type the words "angel investor" into your search engine, and all manner of matter will surface. There's something new on the Internet every day and some of what comes up may be worth looking into. But beware: There's a lot of junk out there, too.

Under The Bright Lights

Another place where angels sometimes congregate is the business incubator. Angels like new business activity, and incubators are often full of promising start-ups. According to Dinah Adkins, executive director of the National Business Incubation Association, some 60 percent of the 550 business incubators in North America offer formal or informal access to early-stage financing, which often means angels.

In addition, many incubators screen applicants, offering what amounts to a quality-control mechanism that attracts investors. In short, you can gain access to angel investors simply by being a member of the club. You can obtain a list of incubators nationwide by sending a self-addressed stamped envelope to the National Business Incubation Association, 20 E. Circle Dr., #190, Athens, OH, 45701-3751. You can also call (740)593-4331 or visit its Web site at http://www.nbia.org.

The School District

Universities with entrepreneurship programs can be fertile ground for finding angels. The connection between entrepreneurial academia and successful business start-ups is so well-established (Stanford University and Cisco Systems--need we say more?) that universities attract even more angel investors than incubators do.

The important thing is getting in, seeing if there's a vein to be mined and, if there's not, moving on. Many universities have alumni angel networks, SBA-sponsored Small Business Development Centers, and professors and deans who are wired into angel investors, as well as new venture workshops that are really networking opportunities.

If there's a university nearby and it has an entrepreneurship program (no matter how formative), it's worthwhile to call someone on the teaching staff, make an appointment and sit down with him or her to see how the program can help you find investors. If you have a choice of universities nearby and you want to determine which has the top program, buy a copy of a study that was published in The Journal of Business Venturing called "Measuring Progress in Entrepreneurship Education" by Elsevier Science. Call (800)282-2720 for a reprint of this article, which appeared in Volume 12, Issue 5 of the publication. The cost is approximately $44.

Press The Flesh

There are any number of formal networking events organized for the express purpose of putting angel investors in direct contact with capital-hungry entrepreneurs. For example, MIT Enterprise Forums, which are held in some 14 cities across the United States and five additional international cities, take the form of a business-plan presentation--followed by a critique of both the plan and presentation--to professional investors, who are often institutional venture capitalists. But there's plenty of time before and after the program to network, see and be seen, pass out cards, and find leads.

Other formats include panel discussions, breakfast workshops, cocktail receptions and brown-bag seminars. Sponsors range from chambers of commerce and professional consulting organizations to universities and state economic development organizations. There are also venture fairs, which give entrepreneurs direct contact with angels in a "walk the midway"-type arrangement. You need to be careful with fairs, however. Many such events are organized to put companies in front of institutional venture capitalists. If you don't qualify for that kind of investment--and very few small businesses do--you'll find trying to get a slot to be a frustrating and generally unproductive use of your time.

To find your venue, call the nearest chamber of commerce and ask if they have a venture group. If you need to locate a chamber near you, call the U.S. Chamber of Commerce in Washington, DC, at (202)659-6000 or visit its Web site at http://www.uschamber.org. If you want to find out if there's an MIT Enterprise Forum scheduled for a city near you, call the MIT Enterprise Forum headquarters at (617)253-0015 or visit its Web site at http://web.mit.edu/entforum/

Hire A Professional

At the end of the day, it's still the lawyers and accountants who best know where the money is. And either overtly or subtly, part of what many of them are selling is access to investors that might have an interest in your business. In fact, if you own a hotshot technology or Internet company, some law firms and accounting firms will actually defer some (or, if you're lucky, all) of their fees until funds are raised.

At RealTime, Seidman retained Philadelphia-based powerhouse Morgan, Lewis & Bockius, where Stephen Goodman is the lawyer of choice to the region's growing cadre of tech companies. "If there's somebody we need to get to," says Seidman, "he can be effective in making an introduction."

Unfortunately, you can't simply call an attorney or accountant and tell them to turn on the spigot; it's got to be done in the context of an engagement--some engagement, any engagement, that gets everything on a professional footing, such as assistance with financial projections. As the twist to the old saying goes, it takes money to raise money.

Meanwhile, back at RealTime, Seidman and his partners are caught in the archetypal entrepreneur's warp. They're so busy building and running the business that raising money becomes even more challenging. "The only thing I can say," says Seidman, "is that it's a good thing there are so many paths we can take. Otherwise, we'd never find the time to find the investors."

Next Step

In addition to the organizations listed in this column, the following are some useful Internet privacy sources for small companies:

All's Fair

If you don't want to join an online privacy seal program, try following the Federal Trade Commission's principles of fair information practices, which are available at

Contact Source

RealTIME Media Inc.,http://www.realtimemedia.com

David R. Evanson's newest book about raising capital is called Where to Go When the Bank Says No: Alternatives for Financing Your Business(Bloomberg Press). Call (800)233-4830 for ordering information. He is a principal of Financial Communications Associates in Ardmore, Pennsylvania. Art Beroff, a principal of Beroff Associates in Howard Beach, New York, helps companies raise capital and go public.