A person seeking backers to fuel a growing company faces a room full of interested investors. He or she pitches the idea and defends the business plan, hoping to attract the buy-in that will help the company reach its goals.
It sounds like Shark Tank, the ABC show in which a panel of maverick tycoons picks apart business plans that vary between brilliant and outrageous. Instead, it’s happening here in South Carolina and could lead to the next big company success.
The South Carolina Angel Network brings early stage companies before possible investors in a similar model to the ABC show. But Charlie Banks, a managing director at the Angel Network and head of its Midlands’ affiliate, winces a little at the comparison. Charlie sees Shark Tank as a made-for-TV spectacle that uses creative tactics to keep the viewers’ attention. That said, Charlie admits that the show has made it easier for the public to understand the role of an angel investor.
Angel investors buy equity in an early stage company that has outgrown the label of start-up to accelerate its growth. They are buying a minority stake in something that they believe is set to succeed.
How do angel investors find the right companies in which to invest? In South Carolina, that’s where the South Carolina Angel Network comes in. It looks to bring together companies that look prepared to utilize such an investment and for qualifying investors. “We manage the entire process,” Charlie says.
To participate, a potential investor must be accredited under definitions laid out by the federal Securities and Exchange Commission. Investors qualify by meeting either of two criteria: a consistent personal income of $200,000 or more (or $300,000 for a couple); or a net wealth above $1 million, not including the value of the investor’s primary residence.
The network also closely examines the companies that apply, reviewing their business model to see if they have the strong fundamentals required to be presented to the angel investors. Charlie explains that for companies to be a good candidate, they ideally already have one type of validation: they have found their first customers.
The due diligence of companies is the most important service that the Angel Network provides for investors. For these high-end investors, the network does the kind of in-depth screening that is necessary but time-consuming. Without this important research, many of these investors might not feel comfortable participating in these types of investments. “We are able to mitigate a lot of the risk,” Charlie says.
Companies in South Carolina often seek out the network after hearing about it through word-of-mouth. Those companies can be in software, healthcare or many other fields: the network looks for any kind of strong company, not just in particular sectors.
Each two-month funding cycle, the Angel Network staff narrows the field of companies until two are chosen to make the rounds of the investment groups around the state. During these rounds, the company’s management will pitch to the potential investors, many of whom are veteran business people. The companies want to attract capital, but they are also receiving the important resource of feedback from experienced voices. For instance, at the Capital Angels, the Columbia affiliate, more than half of the group has been the CEO or founder of a company.
When it’s time to pitch, the company’s leaders will speak before a meeting of dozens of potential investors, many of whom are veteran business people.
As one of them, angel investor Robert H. “Hal” Turner, listens to the pitches, he’s on the lookout for a few key things. Hal, managing member of Turner Telecom Holdings Group LLC and chairman of the board of Elephant Talk Communications Corporation, is evaluating both the company and its leaders as he sits listening to the pitch.
First, Hal says, he is looking at the product or service the company is offering. Does it look like a winner? Is there a market for what the company is proposing to sell? Also, does the management team look like it has the focus and quality to succeed?
It’s not just the company’s product that he evaluates, but how they are likely to build their business and why now is the right time to invest in this company. “‘Why’ is the big piece of the pitch,” Hal says.
His business background in the telecommunications sector makes him more likely to ask questions about businesses in that field. When the business being pitched is in another sector, he often steps back and lets other folks in the room, with their own expertise, lead the questioning. That way, the company pitching gets the input of the sharpest minds in the room.
While the first goal of the pitch meetings is for investment network members to find a worthy company to buy into, there’s also an aspect of mentoring involved. Company leaders can face some tough questioning in the pitch meetings, but those kind of challenges should help them refine their business plan going forward — or to realize that the business is not the slam-dunk prospect that they thought.
In a real sense, Hal says, the potential investors also provide a pool of possible mentors for these company leaders. “There is a wide range of ways that people can be involved.”
After the pitches have been made, network members make up their minds about which individual investments they want to pursue; the network is not a club that pools its money, but a venue for companies to attract individual “angels.”
The Angel Network now has more than 200 investors in its 11 clubs across the state, and it has facilitated investments in 47 companies. The Capital Angels has grown to more than 30 investors since getting started in the past year and a half. The foundation of the South Carolina Angel Network began in 2007 in Greenville with Matt Dunbar at the Upstate Carolina Angel Network. Paul Clark is the third managing director, and the organization recently added angel investment veteran Mac Lackey to its partnership. “There’s certainly more opportunity for Midlands investors to take part,” notes Charlie, who serves as head of Capital Angels.
The first order of business for the South Carolina Angel Network is to find companies that are worthy of its investors’ attention and offer a probable investment return. But as that continues, the network also intends to help South Carolina grow and prosper too.
Those involved in boosting entrepreneurship in the state agree that South Carolina has some work to do. Amy Love, director the office of innovation at the S.C. Commerce Department, notes that the state’s climate for start-ups is a topic of interest for companies considering an investment here. According to Amy, “Tell us about your innovation ecosystem in South Carolina” is often the introduction to the discussion.
Amy is heading up the Commerce Department’s plan to boost groups that are involved around the state. It is making grants to support organizations that help the state create and boost high-growth companies, both start-ups and existing businesses.
In its 2015 round of grants, the innovation initiative awarded $2.6 million to organizations boosting entrepreneurship in key sectors, including such Midlands organizations as IT-ology and the University of South Carolina Columbia Technology Incubator.
Another effort, called SC Launch, uses revenue generated by the South Carolina Research Authority to provide capital and support to in-state start-ups. Since its origin in 2006, SC Launch has provided backing and support to more than 300 organizations across the state.
“South Carolina needs to improve both the number of new start-ups that are being created and its availability of capital,” Amy says. Groups such as those being supported by these grants can help entrepreneurs connect to investors and coach them to be ready to make a deal. “A lot of entrepreneurs are challenged with the 30-second sales pitch,” she says. “A business incubator, for example, can, as part of its support for fledgling companies, give entrepreneurs a veteran audience to help them refine their sales pitch so they can close a deal.”
As the Palmetto State improves its climate for investment, the South Carolina Angel Network hopes that it can grow, especially since, as Charlie points out, it is the largest and most active group of angel investors in the state.
What constitutes a win for the companies that the angels invest in? Of course, everyone would like to see one blossom into the next Apple or Google, but those are the rarest kind of business successes. Charlie says that he would love to see a company that the network invests in grow large enough to attract the attention of large technology acquirers. That would a great benchmark and advertisement for the state’s innovation culture. “We would love some big tech wins,” he says.
Winning in a business investment also is defined in other ways. Often a company with an innovative product or idea is bought out by a larger firm. People don’t make many TV shows about that kind of business success, but for an investor in a start-up company, that can be a profitable success.
Charlie and his partners are confident that the South Carolina Angel Network can continue to grow and help more companies take root and succeed in the state. Connecting more possible investors with growing firms is a key part of that, he says. “People like what we’re doing.”