Editor’s note: “The Angel Connection” is a regular feature in WRAL Local Tech Wire. LTW asked consultant Bill Warner to share with readers advice for entrepreneurs seeking investment. He is chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast. The Angel Connection is published weekly.
RESEARCH TRIANGLE PARK – Ever since most angel investors moved their investment preferences to much more mature companies, shortly after the dot.com crash, there has been a huge gap in financing opportunities for start-up companies who need several hundred thousand dollars in start-up money.
Aside from friends and family investors and bank loans, this gap is often filled by grant programs provided by various government agencies under the U.S. government’s SBIR program. I call it “grant land,” and I direct entrepreneurs there who need money for research. This money helps them bring their businesses to a point of maturity that angels will be interested in.
Help May Be On the Way
Last week, the House passed what could be a controversial bill that is on its way to the Senate. The proposed Small Business Investment Expansion Act of 2007 makes several amendments to the Small Business Investment Act of 1958. Although there are still several controls that limit grants to companies that are venture backed, many other improvements are being made that could speed up the approval process, broaden the qualifications criteria and provide more money through angel organizations.
I direct your attention to the blog link with this story that was published on the Washington Post website:
The Taxpayer’s Perspective
I am generally not a proponent of taxation, but this program does make sense. Our money is being used to foster entrepreneurialism which in turn will help economic growth, resulting in a positive return for our tax dollars. In a way, this makes us all angel investors as a very small amount of our tax money is being used to create new companies.
The Raging Debates
However, there has been some controversy about this program. Many are concerned about the misuse of the program by large firms who have majority ownership in the companies applying for grants and loans. Interestingly enough, it doesn’t seem to be acknowledged that these firms are taking great risk in investing in early stage companies. They do have the incentives to achieve a return on investment, don’t they? There seems to be unfounded concern that universities could create holding companies that perform pure research and not take the next step of bring products and services to market. The bill provides funds to angel organizations, the reaction to which is that tax money is going to high net worth individuals. After all, let’s not put any money into the hands of people who could actually make wise and well informed choices for investment, and who are also taking great risk in entrepreneurial companies.
The Debates Will Continue
All said and done, these debates seem to fall right on the line that defines who is in control, the US Government or the taxpayers whose money is being used for these programs and who also voluntarily provide financing for these companies. The debate will continue, even as the bill is enacted, but the proposed amendment will help fill the financing gap a little better than it did before.
About the author: Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members.