Angel investors have very specific ideas about what kinds of ventures they do and do not want to fund. #b#John Ason#/b#, a private angel investor, suggests that most angels are not interested in medical or biotech because such ventures require lots of capital and are subject to government regulations and testing.
For himself, Ason also avoids any company that labels itself as “green.” He is not against green companies, but when he sees the word in a proposal, it is a signal that the proposed business will not earn money.
What does interest him are businesses that will make a lot of money. “For an angel, you typically want to see a large potential return, a 10-bagger, 10 times your investment,” says Ason. “If you put in $100,000, you want to see a path or possibility that you will get a million.”
Ason is a panelist at the Venture Association of New Jersey’s Fall Entrepreneurs Expo and Elevator Pitch Olympics on Monday October 25, beginning at 10 a.m. at the Marriott Hanover in Whippany. Other panelists include #b#Matt Bieber#/b# of Originate Ventures; #b#Mario Casabona#/b#, president and CEO of Casabona Ventures; #b#Tim Foster#/b#, business development manager at Edison Venture Fund; #b#Michael Helmer#/b#, partner at DLA Piper; and #b#James Kollegger#/b#, CEO of Genesys Partners. Cost: $100. Visit www.vanj.com.
Ason, who has been an angel investor for 14 years and provided funds to more than 30 companies, has no trouble rustling up entrepreneurs. He makes himself available by speaking at VANJ events, lecturing at Wharton and Fairleigh-Dickenson, publishing articles, and appearing on television. He also gets referrals from lawyers, accountants, and service providers. Asked how many entrepreneurs he has heard from, he says, “I stopped counting at 30,000.”
Ason’s process is fairly straightforward. He asks for a one-page executive-level summary that gives the essence of the business. “I don’t like or accept business plans,” he says. “I have no time, and I know how they are generated — people make up the numbers.” If a proposal looks interesting, Ason arranges a meeting with the entrepreneur.
Ason’s most salient criterion for funding an idea is the return it is likely to generate, and to generate the high returns he wants, a proposal must either describe a business that leverages into higher and higher volumes without increases in cost, or one that has very high margins.
#b#Leverage#/b#. Leverage is when the same amount of effort is required to sell varying quantities of a product. One example is a toy company, Tucker Toys, he learned about through VANJ. It has sold well over $10 million worth of Phlat Balls, which can be squeezed into a disc shape and thrown like a Frisbee, but then pop back into a ball after being thrown. The balls are made in China and sold to distributors.
“A distributor can buy 100 or can buy a 40-foot container or a couple of 40-foot containers, and it requires the same amount of effort to satisfy both,” says Ason. “An order is an order.” The only work required by Ason’s company in all three cases is filling out an order, but of course profits are proportional to volume.
Another of his companies, Diapers.com, does close to $300 million a year in business. Because of careful optimization of boxing and shipping, a big box of diapers can be shipped for free at the same as they would be at Cosco or Walmart. “Selling diapers on the Internet is not very interesting or exciting, but we have algorithms and processes to deliver them very efficiently,” he says. This generates large volumes from mothers who are happy not to lug diapers home if they can be delivered at the same price.
Another company, Hotlist, is in the social media space that allows Facebook members to find out what events their friends have signed up for. “The company is in hyper growth,” he says. “There are tremendous numbers of viewers and potential customers, and leverage is getting a large base of customers.” The site will make its money through various schemes that are not yet public.
Ivyexec is an electronic job board that prequalifies all job candidates, thereby funneling only a small number of candidates to participating companies. “Instead of 20,000 from monster.com, they will get six candidates who are prequalified and can do the job,” says Ason. Not only is the price inexpensive, but having fewer candidates reduces the expensive documentation of interviewees required to ensure there is no discrimination and hence decreases costs.
#b#High margins#/b#. High margins buttress a company from the difficulties it is likely to encounter as it grows. “If you start with 20 percent margins, if you have any setbacks, you will be out of business,” says Ason. “If your margins are large, you can recover.”
One of his companies with a high-margin product is Calluna Vineyards in California, which sells two vintages to high-end restaurants by mail order all over the country: a basic wine for $30 and a premier for $60. “The cost of producing a bottle of wine is independent of the quality,” says Ason. “It is a function of grapes, terrain, sun, and climate. If you sell at $60, you have a large profit per bottle.”
Another company Ason is considering funding is likely to have both high margins and high volumes. To Die For is offering items by top designers through a Dutch auction, which starts at retail price and goes down until someone buys. The items are high end and guaranteed not to be copies.
Once Ason is convinced that a company is likely to generate the profits he seeks and has the management to take it there, then he, perhaps along with other angels, will provide capital for a year’s run — with the hope that at the end of the year they will either sell out or get venture capital funding.
Ason was born in Germany and grew up in Chicago, where his father worked in furniture factories and his mother was a cleaning lady; his parents were from Poland, where they were farmers.
Ason graduated from the Illinois Institute of Technology with a bachelor’s in mathematics and then worked for Bell Labs for 25 years, first in Naperville, Illinois, and later in New Jersey. He was responsible for marketing and sales of large telecommunication systems to huge overseas telephone companies, one per country, and his work included network management, line testing, and data networks.
All along Ason had also earned money in the stock market, and when he retired in 1996, he gradually moved into angel investing. “I could read financials,” he says. “I was very familiar with companies; and in my work at AT&T I had helped build companies overseas.” He currently has 13 active companies.