Even in a gathering of about 70 people, spotting the money seekers was easy. They were the younger men huddled off to the sides, clutching glasses of mineral water and trying not to look anxious.
All around them, Silicon Valley veterans in semiformal attire traded jokes and gossip over cocktails. It was early evening, but the mid-June sun still slanted through the picture window of the Los Altos Golf and Country Club's private dining hall, where the "Band of Angels" was convening again.
Begun in 1995, the band is an informal club of about 150 angel investors, or private financiers, who meet for dinner once a month to network with one another and to listen to representatives from three companies looking for seed capital. Before being invited, each start-up must find an angel from the group to serve as its sponsor.
Those seeking money must then pass a rigorous vetting process and survive the final cut administered by Hans Severiens and Ian Sobieski, the band's managing directors. All for the chance to zoom through their PowerPoint presentation in the 20 minutes before the timer next to the podium flashes red.
But running the gauntlet can definitely be worthwhile. If a company's presentation is well received, interested investors usually attend a follow-up luncheon a week later, where some may write personal checks for US$50,000 to US$100,000 in exchange for a small stake in the company.
Venture capital
In early 2000, it was still possible for a start-up to skip the angel stage and go directly to venture capitalists, taking home perhaps US$5 million with few questions asked. In the heady days before the tech boom collapsed, the venture capitalists had billion-dollar funds raised from limited partners like universities and could easily afford to risk a relative pittance on early stage concepts. No longer.
Venture capital financing fell from US$26.1 billion in the first quarter of 2000 to just US$10.2 billion for the first quarter of this year, according to PricewaterhouseCoopers/Venture One. What cash there was went mostly to struggling mid-stage companies already in the venture capitalists' portfolios; seed-stage financing plummeted to US$32.9 million, down 75 percent from a year earlier.
Angel backing
Not only are venture capitalists shying away from start-ups just getting off the ground, they are also creating a bottleneck down the line for those angels still willing to take a chance. "The companies in the tough spot now are ones that have angel backing but no venture capital," said Steve Jurvetson, managing director of Draper Fisher Jurvetson, an early-stage venture capital fund. "When they need more money, it's difficult to get VC's attention."
Last year the Band of Angels invested roughly US$25 million in 23 companies, making the group one of the most active of the many angel networks in the US. The Center for Venture Research at the University of New Hampshire puts the number of active angels in America at around 400,000. To be accredited, angel investors are required by the Securities and Exchange Commission to have assets of at least US$1 million.
Angel investing has become one of the most popular activities for many wealthy people. But it is not a hobby for the impatient or the cautious: Angels will not see their money again unless the company successfully goes public or is acquired. Given the youth of these companies, that can take a while even in an environment less hostile than the current one. Since its founding six years ago, fewer than 10 of the group's more than 100 investments have gone public, while about 15 have been acquired.
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