Angel investing -- Hornbacher says DL area ripe for investment

October 03, 2008

Jason Adkins
DL-Online - 10/03/2008

Potential investors and local entrepreneurs learned about the concept of angel investing, and how that can help launch new businesses in the area, at Friday’s entrepreneurship speaker series at the Minnesota State Community and Technical College Campus in Detroit Lakes.

Bruce Hornbacher, who was with the Hornbacher’s grocery store chain based in Fargo, said that the Detroit Lakes area is ripe for new investment, especially with a proposed redevelopment plan for the city.

“The opportunity is here,” Hornbacher said, stating that the quality of life in the lakes area is tough to match.

Two University of North Dakota students, Preston Page and Dan Waind, educated the attendees about what angel investing is and the role it plays in the evolution of a company.

Instead of entrepreneurs going to a bank for a loan to receive funding, angel investing involves groups of people pooling their money together to fund companies.

What Page and Waind said attracts entrepreneurs to angel investing instead of getting a bank loan is angels generally provides more money than a bank can.

Plus, entrepreneurs don’t have to take out a second mortgage and risk their home if a business goes sour.

“Debt financing may not be suited for entrepreneurs or they may not be qualified for a loan,” Page said.

Plus, angel investors are generally motivated to help entrepreneur learn and grow, so that the investors in turn receive a return on their investments.

“They invest energy and time to make that company successful,” Page said.

He added: “They want to give back to the community.”

One attendee asked MSCTC-DL Provost Cristobal Valdez if a local angel investing group was close to being formed.

“I wouldn’t typify it as a long-range goal, but more of a short-range goal,” Valdez said.

To that effect, Valdez invited several potential investors to stay after the meeting to learn more about what the school is trying to do in setting up angel investing groups.

Angel investing is just a piece of the puzzle, as start-ups go through three stages of funding on the road to profitability.

One is just to get off the ground, and that involves getting money from “friends, family and fools,” Page said. That initial round likely involves amounts less than $100,000.

The next stage is where angel investing comes into play. The seed stage can range anywhere from $100,000 to $2 million.

The third stage, $2 million and up, is where venture capital funding comes in.

Angel investors generally take a stake in the companies they invest in. Waind said that how much of a stake should be given to angel investors is a matter that’s too complicated to present in just half an hour.

Waind said that what angel investors are looking for when searching for a company to invest in is what the management is like.

“Anyone can write a book from A to Z on how to they want the business to go,” Page said. “But when they meet them (investors), it changes.”

Trust and a proven track record are important components.

“That’s where it’s at, management,” Hornbacher said.

Another one is being able to present an investment pitch quickly.

“If you can’t get it down within 15 minutes, you’ll lose a lot of people’s time,” Page said.

Tech companies are at the top of the list as to what ventures receive angel investing, Page said. Companies in that sector receive about of third of angel investment money.

That’s probably because those companies are high growth. Page said that investors generally want a 20 to 30 percent return on their money.

Plus, investors generally won’t get their money back in a successful venture for five to seven years.

Investors generally get their money back in three ways. One is that a company merges with another or is acquired.

A second way is that the original investors buy the entrepreneurs out. And the third, which is rare, is an initial public offering.

A potential entrepreneur, Brant Schmitz, said that the speaker series helps him since he has a lot of business ideas, but not necessarily the money to implement them.

“It’s just a matter of a good idea, and to get up and running,” Schmitz said.