Angels help local firms spread their wings
Angels filled a dining room Wednesday night at the Duquesne Club.
These angels embodied the same spirit of local entrepreneurialism as the stern-faced men of yesteryear whose oil portraits decorate the room's walls — men named Mellon, Phipps and Oliver, among others, who financed, in the firms' infancies, companies such as Gulf Oil, Kopper's Industries and Pittsburgh Plate Glass Co. (PPG), which became innovators of the industrial age.
Today, when capital for new business creation and expansion is flowing less freely than it has in a generation, these present-day angels are being looked to as the salvation for the next wave of Pittsburgh entrepreneurs and their technological breakthroughs.
The effort began Wednesday to unite these high net worth individuals who are willing to risk some of their personal fortunes on patient bets on companies who are often not developed enough to arouse interest from professional financiers.
"This is the hard money to get — the next $500,000 or $1 million after friends and relatives' money runs out," said Jonathan King, a member of the recently formed Southwest Pennsylvania Angel Network (SPAN).
Organized by Innovation Works, a publicly funded seed capital investment corporation that has committed $15 million to 48 regional start-ups since 1999, SPAN will meet quarterly to evaluate young companies for potential investment.
About 70 people showed up to hear pitches from two local start-ups, both of which have received prior investments from Innovation Works.
The evening began with a keynote speaker, John May, co-author of "Every Business Needs an Angel." May is the founder of New Vantage Group, an early-stage investment firm in Vienna, Va., and leader or "archangel" of the Dinner Club, a group of angel investors in the Washington, D.C., area.
May said he was impressed by the turnout for SPAN's first meeting and by the quality of the presentations from the two companies — Bridge Semiconductor Corp. and Fluorous Technologies Inc.
"If every presentation this group sees is as good as these two, you're going to be in good shape," he said.
The audience liked what it heard from Bridge Semiconductor, led by Chief Executive Joshua Ziff, a former vice president of successful medical device manufacturer Medrad Inc., who personally invested nearly $1 million in the venture.
Bridge makes an infrared sensory semiconductor chip for commercial application in thermal imaging devices for firefighters, night-vision enhancement for automakers and for security applications.
Besides Ziff's investment, the company has raised about $1 million from Innovation Works, company management and CID Equity of Chicago. Ziff was to fly Thursday to Chicago to meet with prospective venture capital investors regarding a $2.5 million investment to provide working capital for the next 12 months to launch the product and ramp up sales and marketing efforts.
But in the meantime, he needs about $600,000 to get the product through beta testing trials with customers — a critical milestone where he is counting on angels to open their checkbooks.
One unique group of angels has already come through. Advanced Global Technologies Inc. has made a $50,000 commitment to Bridge. The group of about 40 individuals started out five years ago as a network of five local physicians who pooled their resources to make early stage angel investments — primarily in Pittsburgh-based companies.
By pooling resources, those of more modest means (the group requires a minimum investment of $6,000) can get in on the action.
Dr. Laura Pallan, a founding member of AGT, said the group has had some successes, including a $40,000 investment in an Arizona-based firm that produced a $480,000 return when the company was acquired. There also have been some failures.
Pallan said SPAN will provide a new network of peers to share opinions and ideas with, as well as a new forum for viewing a flow of possible deals.
For Philip Yeske, chief operating officer of Fluorous, an investment is needed to expand sales and marketing efforts and to continue building the company's products for improving efficiency of drug discovery and development for major pharmaceutical companies.
The company is seeking $1.5 million to $2 million by year's end to fund the next 12 to 18 months of operations. It has raised about half of the amount so far from an industry partner Albany Molecular Research Inc.
"(SPAN) is a wonderful way for our company to be exposed to high-net-worth individuals in the region who can provide us with the funding and the mentoring to help us reach our aggressive goals," he said.
Angel funding survey
73 deals per year
6 Angels per deal
$135,000 per deal
$1.4 million per year
To learn more about the Southwest Pennsylvania Angel Network, contact Kevin Lynch, director of Innovation Works' Private Investor Program at email@example.com, or call (412) 681-1520, Ext. 421.
University of New Hampshire Prof. Jeffrey Sohl