Angel Groups Help Businesses Get Off Ground
Do you want to start your own business or have dreams to expand your company?
There is a new group of angels forming in Tyler that could help.
East Texas Angel Investors Group is the brainchild of Don Proudfoot, director of the Small Business Development Center at Tyler Junior College. When considering how to use a federal job grant for $113,000 the center received in 2011, Proudfoot looked at angel groups made up of investors that have become popular in Texas, including Dallas, Houston and Austin. But there was no such group in the East Texas area.
Pat Kittrell, business advisor for the Small Business Development Center, which is partially funded by TJC, is the so-called point man for the local group that the center is helping to form. The angel group helps entrepreneurs who are having trouble getting loans from banks or who don't want to go to venture capitalists to start or grow their business.
Kittrell, 62, spent about 30 years in the retail industry. In 1999, he opened The Gift Box in Tyler, with the help of the Small Business Development Center and the Tyler SCORE Chapter. Kittrell closed up his shop in 2004 and decided he wanted to give back to those who helped him, joining SCORE and becoming business advisor for the center in 2011.
Nothing happened with Proudfoot's Angel Investors idea for a while. He hired Kittrell and fellow business advisors Perry Smith and Robert Lewis to work part time on forming the group. With the downed economy, no matter how much money someone has, they don't want to throw it away on a bad investment, Kittrell said.
"It has been an uphill battle until about a month ago," he said.
There are two investors who pushing to get the project started while another one has been a part of the idea from the start. There are now about 20 local investors who want to be a part of the group, Kittrell said, adding that he was not prepared to release the names of any investors until the group is officially formed. He said they are hoping to get the group of investors set up by Aug. 1.
Kittrell said 53 entrepreneurs have signed up for the program, including several from the area but also from as far away as Canada and California. Helping out-of-town businesses is not the goal, he said.
"We're creating this group to help entrepreneurs in this area," he said, adding that entrepreneurs involved with any kind of business can apply to the investors. This month, a meeting of the potential investors will be held and the chairman of the Central Texas Angel Network will talk to them about his similar organization.
He said the local group started with all of the counties around Smith County, such as Henderson, Cherokee and even Nacogdoches, but they have been contacted by four interested investors from Paris, in Lamar County. "Being East Texas Angel Investors, we want the whole East Texas area of investors to join up," he said. Kittrell also wants to make sure they involve economic development councils, chambers of commerce and small business development centers throughout the East Texas area.
Tyler's Small Business Development Center is working to facilitate the forming of the group and help put entrepreneurs and investors together. The program is now being funded by the grant money but once that runs out, the investors will need to decide how to fund it, whether it is through yearly investor dues or charging entrepreneurs a fee to apply, Kittrell said. There is already a four-member board of directors and they are looking for a fifth member, and at some point the group will form into a corporation.
Entrepreneurs can include as much as they want about their business -- including their business plan, forecast, financials and executive summary - when applying. Investors review the information, rate it and decide if they want to meet with them. If so, entrepreneurs have 15 minutes to pitch their business idea. The investors can then decide if they want to hear more about the company during a second meeting, Kittrell said. Based on the group's structure, investments are either made directly by individual members or by the group as a whole. Most groups apply standard terms to their investments, with some flexibility to negotiate.
The entrepreneurs list how much money they would like to get from investors and the investors, in turn, decide how much they want to give. A typical angel group's investment ranges widely from $25,000 to $500,000 per deal, depending on how many group members are interested in it, Kittrell said. For example, if a company needs $100,000, four investors can decide to each pitch in $25,000. And if a business needs $1 million, the investors might decide to pull together $400,000 and send the company's information out to 14 other angel groups in Texas to see if they are interested in investing. He said all of the state's angel groups are starting to syndicate and are members of the national Angel Capital Association, as Tyler is.
The Angel Capital Association is the North American trade association of angel groups and private investors that invest in high growth, early-stage ventures.
After investing in a business, investors will eventually get preferred stock in the company that they can later change to common stock and be cashed out, Kittrell said. Investors could also loan the money like a bank and get a certain percentage back, he said.
"Some of this stuff is still kind of up in the air," Kittrell said of the program. Ground rules have not been set and it will be up to the investors to come up with them. Kittrell said those interested in becoming investors or who seek more information about the group can call the Small Business Development Center at 903-510-2975.
To apply to become an investor or entrepreneur wanting to present their ideas, visit http://gust.com/angel-group/east-texas-angel-investors
. Kittrell said they are working on a website, http://easttexasangelinvestors.com
, which will be more informative about the program.