Entrepreneurs have several sources of capital to supplement their own assets for starting new businesses. Friends and family (F&F) often provide thousands of dollars to fund pre-seed ventures for prototype development, writing business plans and identification of potential customers. In total, U.S. friends and family provide entrepreneurs with an incredible sum annually, approaching $50 billion per year! The federal government also funds pre-seed companies (see Funding Your Startup with SBIR Grants), but provide only about 10% of the sum annual provided by F&F. These sources provide individual entrepreneurs with a few thousand up to $200,000 dollars each.
Once potential customers of the new business have validated that the company’s new product is a “must have” and not just “nice to have,” entrepreneurs often seek startup capital from angel investors. Angels tend to invest $200,000 to $1 million, but seldom much more in new companies. A million dollars from angels may be invested in multiple rounds, say $300,000 first and then $700,000 later.
When entrepreneurs need more than $1 million to grow their ventures, they may be funded by venture capitalists (VCs), who frequently invest a minimum of a few million up to as much as $50 million in rapidly growing companies. Unfortunately, venture capital is not distributed uniformly around the country. New Montana companies are seldom successful in raising venture capital (see Venture Capital in Montana) – only 11 companies have raised VC funds in the past decade.
Unlike VCs, angel investors are actively seeking Montana startup companies for investment. The most active angel group in the state is the Frontier Angel Fund, located in Kalispell/Whitefish. The Frontier Angels have written multiple checks totaling millions of dollars for the following eight start-up companies in the past five years:
EnerG2 – advanced nano-structured carbon materials for energy storage
GenPrime – provider of microscopic organism analysis equipment and services
Ivus Energy Innovations – mission critical products that fully charge in seconds
LigoCyte – solutions for respiratory and gastrointestinal illnesses
Ntractive – Elements, the MAC CRM solution
Pacinian – haptic interfaces with digital devices
Prosperity Organic Foods – specialty organic foods
Tipu’s Tiger Chai –a bold alternative to coffee and tea
Frontier’s first priority is to invest in Montana companies but the group frequently invests alongside other investors in new companies in the Pacific Northwest. Prior the current (July 2011) bi-monthly meeting, the Frontier screening committee reviewed applications from 13 companies and selected two Northwest Montana companies to present to the membership.
Entrepreneurs seeking more information on the companies that should seek angel capital, please refer to the following information: Angel-Fundable Startup Companies. To better understand the process for applying for funding from the Frontier group, see The Frontier Angel Fund Application Process.
Angel investing is not new to Montana. Wealthy businesspersons have been providing business savvy and capital to entrepreneurs for many years. The Bridger Private Capital Network of Bozeman has funded companies over the past decade. For more information, inquire with TechRanch.
About fifteen Missoula angel investors have affiliated as the Big Sky Angels and are seeking startup companies for funding. According to organizer Dr. Dave Opitz, the Big Sky Angels group is partnering with the Frontier Angel Fund (Kalispell/Whitefish) to screen deals, complete due diligence and make investment decisions.
Liz Marchi, head of the Montana Angel Network, reports that solo angels are active all over Montana. Unfortunately, these investors are often difficult for entrepreneurs to identify. In general, service providers, such as attorneys, accountants and bankers, are the best sources of introductions to local angels. Liz also reports several additional regional groups are considering the formation of new angel organizations.
The Montana’s State Workforce Investment Board is offering a new ½-day workshop for entrepreneurs considering or who have already started new businesses, entitled Financing a High-Impact Venture. This opportunity to learn more about capital sources, especially funding from angels, was first offered this year in Kalispell on April 21st and then Bozeman on June 14th. Planning is underway for the workshop in Butte on Aug. 17th and additional Montana locations in the second half of 2011 and into 2012. For more information on locating a workshop nearby or to host a workshop in your region, please contact Liz Marchi at {encode=”[email protected]” title=”[email protected]”} or (406) 883-4044.
Columnist Bill Payne is an entrepreneur and angel investor. He may be reached by email at {encode=”[email protected]” title=”[email protected]”} or see his website at www.billpayne.com where his book The Definitive Guide to Raising Money from Angels is available. This is the tenth in a series of monthly articles in the Entrepreneurs’ Corner written by Bill Payne for the Flathead Beacon.