The model of innovation and invention has shifted from corporate-generated to small-firm generated. Companies are less likely to staff and fund departments that specifically develop new products or technologies and more likely to buy small startups that have developed promising technologies on their own.
For this reason, angel investing is big business. Unlike venture capitalists, who look to invest millions of dollars in companies likely to make millions in return, angel investors invest smaller amounts — maybe a few hundred thousand dollars — to help promising startups in high-potential growth markets get through the early days.
“Angels are filling that space venture capitalists left a long time ago,” says Katherine O’Neill executive director of JumpStart NJ Angel Network in Mount Laurel. “A lot of venture capitalists come in at 3 to 5 million. We’re the seed stage.”
Jumpstart will be one of 10 angel groups represented at the New Jersey Entrepreneurial Network’s annual “Gathering of Angels” event on Wednesday, June 6, at noon at the Princeton Marriott Hotel and Conference Center at Forrestal. Cost: $55.
Joining O’Neill will be representatives from New York Angels, Delaware Crossing Investor Group, and GoldenSeeds, as well as Karen Griffith-Gryga of Mid-Atlantic Angel Group Funds; Stephen Nagler of Tri-State Ventures; Craig Schroeder of Robin Hood Ventures; Mario Casabona of TechLaunch; Tom Sullivan of Innovation Garden; and Yaniv Sneor of Mid-Atlantic Bio Angels.
The event is what NJEN calls a “reverse venture fair,” in which entrepreneurs will be able to individually meet with numerous investors in one location. Visit www.njen.com.
O’Neill has helped fund everything from sole-proprietor startups to major corporate mergers. Following a globe-trotting youth with a career-Air Force father, O’Neill took her bachelor’s at the University of Maryland and her master’s from the University of Pennsylvania, both in economics.
O’Neill joined a succession of large, East Coast financial houses, helping clients with expansions and acquisitions. For the past seven years she has served as the executive director of JumpStart. She also runs her own firm, O’Neill Associates.
Show Me the Money. One of the things that drives O’Neill is the idea that “there is never enough early-stage start-up money for businesses.” New businesses, new ideas, and new investors come along every day, and new businesses — particularly the ones that do not yet have a product — need cash flow.
But large-scale capital venture firms want something more tangible, O’Neill says. They want to invest big money on the (very strong) promise of big returns. They do not want to put several million dollars into a “maybe.” And the whole point of being a tech startup is that you develop a product or technology that one day will be a tangible entity.
But without early-stage investment on the lower end, promising companies that would someday be able to reap huge returns for their investors would likely never get off the ground. O’Neill says that JumpStart — which is, apart from New York Angels, the largest angel investment group in the Northeast — has invested as much as $1 million in a single project, but its range is usually less than $500,000. All told, JumpStart has invested more than $19 million in growth-sector companies over the last few years.
“Growth sector” generally means tech, which O’Neill defines more broadly than a lot of people. Tech is not just processors, lasers, and microchips, she says. It is also software, optics, clean energy, and even healthcare. Tech, she says, factors heavily in all these areas — in healthcare, for example, there are new, advanced materials and diagnostic equipment that require tech development.
Find the Right Investors. When chasing the money, startups these days often have to find several investors. O’Neill says angel groups vary tremendously in how much they invest, when they invest, and in what they invest.
And a recurring issue that entrepreneurs run into is approaching the wrong company. JumpStart, for example, does not invest in drug development, so it would be a waste of time to look for seed money from this particular investor.
And time, really, is what is often the arbiter in whether a company gets funding. “The issue with all early-stage investors is not the money, it’s the time,” O’Neill says. Investors have the money to risk — that’s why they’re investors. If you spend their money, that’s expected, but if you waste everyone’s time, or look like you will, that’s not good.
Do Your Homework and Be Humble. Naivete is a common problem among new startups, O’Neill says. Entrepreneurs often come in under-prepared, having not thought through their business plans. Then, of course, there is arrogance.
“One common mistake is that people think they have no competition,” O’Neill says. Entrepreneurs, impressed with themselves, often come in thinking that because they (or their ideas) are “the best” that they don’t have to worry about who else is out there. “They think they’re too good for the competition,” she says.
The truth is, this is where startups with a lot of potential lose out. That “I have no competition” arrogance turns investors off, because investors are not interested in your opinions, they are interested in the process and the results. If you come in naive, rather than prepared, O’Neill says, you will leave without funding. “You have to be able to fit into the competitive space,” she says.
But when an exciting new product or idea, well thought out, does come along, there is still a sense of magic to it, O’Neill says. Yes, the money is a big deal, but investors can invest in anything. Tech investors choose to invest in tech because, well, tech is just cool.
After all these years in finance and investing, O’Neill still feels the kind of excitement a kid feels when she is handed a wrapped present on her birthday. And this, she says, is a common joy among investors, particularly in groups like JumpStart. “It’s not always the money,” she says. “The excitement of what’s next and new is a huge draw.”