News Column

Angel Network Gives Business Owners Wings

May 13, 2013
business angel

Jim Pendleton has been an entrepreneur for most of his life and knows starting a business takes "long hard work and hours with limited capital."

He believes entrepreneurs are the "backbone of our nation," so he and a small group of local business owners have joined forces to help others. Pendleton is president and chairman of the Tyler Texas Angel Network, a group of seasoned entrepreneurs looking to invest in start-up companies that are struggling for funding.

Pendleton, 73, has owned a natural gas equipment company for 40 years, following in the entrepreneurial footsteps of his father, an electrical contractor. He grew up in Dallas and studied engineering at Southern Methodist University before moving to Tyler about 30 years ago.

Pendleton said he has done four or five start-up companies, and they are an "absolute nightmare struggle."

Now after decades of owning a business, he wants to help others starting a company.

Made in America

I wanted to give back and find a similar entrepreneurial business that could benefit from our experience and funding," he said. "I think entrepreneurs are what made America great. ... My desire is to make a contribution to continue that."

Pendleton believes the network can be an asset to East Texas by bringing in new jobs.

"There is a plethora of opportunity lying in the woods out there of entrepreneurs with ideas and product lines that need funding," he said. "That's where (the network) can be such an asset to these people."

He said there always are people with good ideas, but they might not necessarily know the path to bring it to the market place or don't have the funding to do so.

East Texans who want to start a business, or who have started a company but are struggling for capital and don't know where to go after hitting a brick wall with investment money, are prime candidates for the network.

Pendleton said they are looking for start-up companies or small businesses that have exhausted their funds, as well as money loaned by friends and family, and who cannot get bank loans or venture capitalists to invest.

Tom Mullins, president and chief executive officer of the Tyler Economic Development Council, said he has seen the need for early stage financing for start-up companies in Tyler for years.

"At some point in the history of any company, it was a start-up," Mullins said. Tyler Pipe, which for a long time was the area's largest employer, began with a technology developed in someone's garage in Tyler, he added.

Mullins said it is important to try and support business development in every phase, starting with early stage funding, which is the most risky part of the funding process.

"Until the angel network started, we didn't have that piece missing in the continuum," he said.

The process

Pendleton said they are looking for entrepreneurs to come to the group with a business plan and prove it is a marketable product, as well as prove that they have the capability to take it to the market place and to manage the company. Their purpose has to be taking the investors out of the company within three to five years, through a merger, acquisition or IPO (Initial Public Offering), Pendleton said, adding that they are not looking for long-term investments.

He said they could be "mom and pop" companies as well.

Mullins said a lot of people are creative and have good inventions, but they either don't know the business plan aspect of starting a company or don't have access to funding.

"It brings a source of new innovative businesses and job creation in your local economy," Mullins said of network.

The group will invest from $150,000 to $200,000, up to a couple of million dollars, based on the needs and the potential of the company, Pendleton said. One investor, or a group of them, could participate in any project, he added.

Pendleton said they trade their dollars for equity in the company, such as shares of stocks in the business. He said they don't control the company after investing in it but they do place a member on the company's board of directors to follow the investments and to encourage and give advice to the new company.

Pendleton said if an investor invests in 10 deals, 52 percent of the start-up companies won't make it. But of the five investments remaining, he would get an average of five to 10 times his investment back after four years. If he holds the investment for five years, his investment return could be 10 times to 30 times as much. Those numbers were compiled by Dr. Rob Wiltbank through data taken from more than 539 angels making 3,097 investments, with 1,137 cash exits.

Pendleton said the network board members will select the entrepreneurs who present their ideas to the investors. Board members include Pendleton, John Mussleman, treasurer, and Tom Seale, secretary. Mussleman is in oil and gas production and Seale is vice president of American State Bank.

The group of Tyler entrepreneurs formed last year and held their first meeting in October. He said they are trying to get the word out that the organization exists.

Investors

The local group has eight to 10 investors, but it needs 40 or 50, Pendleton said. Once they get enough investors, he said there is no limit to the number of businesses they can help.

The network will help entrepreneurs in the entire East Texas region -- from Lufkin to the Oklahoma border, to Shreveport, La., and approaching Dallas.

"It's a vast area," he said.

The angel groups in Texas network with each other so if a "substantial" opportunity came to the network that was too big for the group, they could connect with other groups to see if they wanted to invest.

"It's an opportunity to build wealth for entrepreneurs, wealth for the investors and wealth for the state," Pendleton said.

Groups that are part of the Alliance of Texas Angel Networks include the Houston Angel Network, Central Texas Angel Network, West Texas Angel Network, North Texas Angel Network, Baylor Angel Network, Concho Valley Angel Network, Texoma Angels, Aggie Angel Network and Cowtown Angels.

Angel groups are growing across the state, as well as the country.

Sarah Dickey, membership director of the Angel Capital Association, said there are about 350 angel groups across the United States. Its 200 member organizations, which includes the network, fund about 2,000 companies each year and have an ongoing portfolio of more than 12,000 entrepreneurial companies, she said.

The network is being mentored by the North Texas Angel Network, which is a five-year-old group composed of 70 to 80 investor members. Pendleton said they have 60 to 70 new entrepreneurs come to them every month to pitch their

business plan. Two or three owners of start-ups are selected to pitch their ideas to the group at monthly meetings.

The Tyler group has made four investments with North Texas companies through the North Texas Angel Network. They include Natural Dental Implant, a patented process; PerioSciences, an antibiotic toothpaste and mouth wash; Urgo Nurse, a patented bed sling that helps nurses move patients; and Vedero, a software company that manages power throughout buildings. Two to four investors from TTAN invested in each of the start-up companies for a total of $275,000.

"As soon as opportunities start presenting themselves here with East Texas entrepreneurs, then we'll start shifting our investment opportunities to them," Pendleton said. "We really want to build this into a noble entity in East Texas and Tyler."

For more information about the network, call Pendleton at 903-530-8590 or visit tylertexasangelnetwork.com.

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(c)2013 Tyler Morning Telegraph (Tyler, Texas)

Visit Tyler Morning Telegraph (Tyler, Texas) at www.tylerpaper.com

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Source: Copyright Tyler Morning Telegraph (TX) 2013


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