A Rancho Mirage startup passed its first test with a fledgling angel network in the Coachella Valley and is getting another chance to nab capital.
Digital Streets representatives will pitch their business concepts to the Coachella Valley Angel Network on Jan. 23, hoping for a cash infusion.
The company provides custom networks of television, telephone and Internet services to private communities and multi-housing complexes. It offers in-home tech support, home and complex surveillance cameras accessed through the Internet or a television channel. It offers secure community Web site portals through which residents can correspond with property management or with neighbors.
Digital Streets was among six local companies that presented their business plans for evaluation to a panel of 13 angel investors and business leaders Dec. 9. The newly formed Coachella Valley Angel Network held the deal screening and a seminar for entrepreneurs and investors on Dec. 8 at a Palm Desert satellite of the University of California Riverside.
Between 150 and 200 entrepreneurs, investors, community and educators attended the seminar. About 60 came to the startup screening, said network founder Steve Weiss. The angel network hopes to hold another major event later this year or early next year.
Weiss, a former medical device company executive and founder of the North Bay Angels started the valley network with three other businessmen investors.
"It's been a developmental effort. It's not Silicon Valley, Boston or Seattle, but there's a core group of entrepreneurs and business people with promising ideas," Weiss told The Business Press in November.
Business, education and economic development leaders in Riverside and San Bernardino counties have long wanted to establish organized groups of angel investors, often called networks. But previous efforts failed for lack of enough committed investors, lack of group procedural consensus and lack of access to promising startup ventures.
Angel networks are organizations of investors who cumulatively pump $100,000 to $500,000 into startup companies. They range from informal groups that hold occasional dinner meetings to highly structured organizations that require dues, pay administrative staff and set investment amounts.
In 2003, Angel Strategies LLC in Tustin attempted to create an Inland Empire group at the request of local individuals. But the effort failed for lack of agreement over how to screen entrepreneurs, said John Garcia, Angel Strategies' founding and managing principal.
Angel Strategies funds entrepreneurs around the world. The organization requires business owners to fill out a 900-point questionnaire rather than submit a business plan. Inland leaders wanted to read business plans rather than use the questionnaire, Garcia said.
Efforts around 1999 to form an inland chapter of Irvine-based Tech Coast Angels failed when only 15 local investors signed up instead of the required 25.
A second effort is underway. Riverside city and county officials are striving to form a local chapter of Tech Coast Angels. The group has about 300 investor members divided into four networks in Orange County, Los Angeles, San Diego and Westlake Village/Santa Barbara.
The city of Riverside will host a first Tech Coast Angels entrepreneur screening session Feb. 28 at City Hall. It is the first event of the Riverside Tech Coast Angels network.
"I think there is a much better opportunity for things to come together this time than five, six or seven years ago," said Mike Stull, director of the Inland Empire Center for Entrepreneurship at California State University, San Bernardino.
The economy has performed well and there are more businesses, he said. "Still the issue will be how extensive the investment will be in this region," Stull said.
Local deal flow will emerge over time, said Frank Peters, president of Tech Coast Angels' Orange County network. The two-year-old Westlake Village/Santa Barbara network contributed few deals in 2005. Last year, the network funded more deals than the rest of the group.
"The fact that Tech Coast Angels is coming here and starting a chapter gives us a better advantage" over previous efforts, said Gregory Lee, coordinator of Riverside economic development.
"I get calls a couple days a week from businesses interested in where they can get funding. The main focus we want to have is on technology," Lee said. The city held a small entrepreneur pitch event in November at which three Inland Empire startups presented their companies to Tech Coast Angels members Frank Peters, president of the Orange County network, Steve Mednick and former Tech Coast member Ed Setzer.
Drug development firm EncorePharma, software startup Averiware and marketing firm Arriba pitched their business concepts, Lee said.
Peters believes the Riverside area now has enough well-heeled individuals to form an inland network. "There's a lot of real estate millionaires now in Riverside," as a result of land sales to developers, he said.
The Orange County Tech Coast Angels network will invite entrepreneurs who will pitch their business concepts to potential investors. Riverside city and county officials must find at least 25 committed investors to create the chapter, which will be the fifth Tech Coast Angels group.
Officials have rounded up eight to 12 potential Riverside-area investors for the new network, Lee said. City and county leaders have contacted local real estate developers to join the new network.
The emerging Riverside network hasn't determined how best to select entrepreneurs for future screening sessions, Lee said. "They would have to go through the normal Tech Coast screening process," he said. The network plans to hold quarterly meetings, he said.
Tech Coast Angels requires entrepreneurs to go through "pass/ fail," five- minute screenings before they are allowed to give more detailed pitches to the four networks, Peters said.
The Riverside area needs an investor to serve as the inland network president, he said. "There's an opening for some guy with a whole lot of time on his hands," Peters quipped.
Tech Coast Angels Orange County network members pay $1,400 each in annual dues. Members typically invest $25,000 or more in startup companies selected through a detailed screening and presentation process.
The formation of angel groups requires committed investors and consensus on the sort of structure the group will have, Garcia said. "Sometimes it's hard to work collaboratively without strong rules in place," he said.
They must determine how to find and select startups, decide who the group decision makers will be and whether members will commit to certain amounts of investments, Garcia said.
Angel Strategies often receives pitches from Inland Empire startups, Garcia said.
Angel groups take wing
Groups have increased from about 12 in 1996 to about 250.
In 2005, angel investors pumped $23 billion into 49,500 deals.
Angel investing totaled $12.7 billion during the first half of 2006, a 15% increase over the first half of 2005.
Active investors increased 3% to 130,000 in the first half of 2006 over the first half of 2005.
Groups averaged 41 investor members each between 2005 and 2006.
The average membership fee was $1,108 between 2005 and 2006.
Investors' top three investment preferences were medical device, software and biotechnology companies.
New groups must decide structure, investment amounts, management, membership rules, how to choose startups.
Sources: The Center for Venture Research, University of New Hampshire; the Angel Capital Education Foundation/Ewing Marion Kauffman Foundation; John Garcia, founding/managing principal, Angel Strategies LLC.
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