News Column

Tech Investment Angels Soar

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Luis Villalobos, a tech entrepreneur with a penchant for grooming companies for success, launched a small Southern California investment group called the Tech Coast Angels (TCA) in 1997.

He'd been told that starting an angel group in Orange County was a waste of time, as there were few entrepreneurs and even fewer angel investors in the region. The prevailing thought was that Orange County was all about real estate, not technology.

He followed his gut anyway, which turned out to be right. In 2001, when the market and tech industry took a dive, TCA members actually made some money, a testament to the group's experience, knowledge, passion, and investment vigor.

The TCA now has 270 members – mostly former entrepreneurs with CEO experience, and some business leaders and venture capitalists – who have invested more than $60 million of their personal capital, coupled with another $607 million from venture capital firms and other co-investors, in more than 95 Southern California high-tech and life science companies.

TCA ranked number 7 (tied with four other firms) in the top 100 U.S. venture capital firms based on number of early-stage deals made in 2004, according to a MoneyTreeTM Survey from PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association.

Supporting and fueling innovations and the entrepreneurs behind them suits Mr. Villalobos and his angel group well. "The last couple of years have probably been the best time for the Tech Coast Angels," says Mr. Villalobos, who has invested in 56 early-stage tech ventures, with 12 exits and 25 companies remaining active. "We have learned a lot, we're attracting terrific people, and we're starting to see [that] a lot of our deals have successful follow-on funding rounds. I'm sure within a year or so we'll start seeing some very nice exits."

Unique Investing and Mentoring Approach

One factor driving TCA's success is its unique approach to investing in and mentoring innovative Southern California entrepreneurs.

TCA members provide $250,000 to $1 million in early-stage and seed capital, an investment range that traditional venture capitalists typically don't deal with. Then, members work closely with companies they invest in through mentoring and coaching, serving on the board, providing contacts, and assisting with team building, strategic planning, and fundraising.

TCA members, who usually invest in one to two deals a month, help get early-stage companies ready for venture capital raising at a higher valuation, and facilitate introductions to venture capitalists. TCA even has a group of venture capitalist affiliate members – 25 of the leading venture capital firms, most of which have offices in Southern California.

TCA's investment process is simple, starting with an application submitted directly to the firm's Web site (www.techcoastangels .com). Though most companies that apply don't make it through the first TCA round, some are mentored by TCA members and come back a few months or a year later in a better position to obtain funding.

Growing, Shifting Role for Angels

Overall, angels are playing an increasingly important role in the "capital food chain" for the tech and life science industries, says Mr. Villalobos, a Newport Beach, California, resident who holds degrees from Harvard Business School and MIT.

"If you look at the companies that we have funded that have received over $600 million in capital, that's a staggering number," he points out, adding that he helped launch two other angel groups: East Coast Angels in Sydney, Australia and Camino Real Angels in Texas.

"When I started Tech Coast Angels I never imagined it would grow this much," Mr. Villalobos admits. "We're seeing some great little companies that we have helped fund. I love learning about and seeing new technologies and getting them out into the marketplace. We're the ones who make 'babies.' "

Mr. Villalobos's confidence and excitement are shared among his TCA peers, but the reality is, angels – much like their counterparts in venture capital firms – are no longer funding ideas. "The dynamics of the last few years' down-market has affected angels in the same fashion as any other investor," says Jack Florio, a TCA member and vice-president of communications for TCA's San Diego network. "Angel investors are looking for something that has a proven concept, a prototype, and some traction with customers. We're looking for more."

Benefit of Vast Experience, Contacts, Personal Time

Those small tech and life science companies that do make it through the TCA diligence process don't only receive funding. They also benefit from the TCA members' breadth of experience. "If you look at the [270] members, you will find people who have been in every aspect of technology – hardware, software, telecommunications, and the life sciences including biotech and devices," says Mr. Florio, who spent 30 years in senior leadership positions with Eli Lilly and holds a bachelor of science degree in Pharmaceutical Sciences from Columbia University and an MBA from New York University.

"Individuals in the Tech Coast Angels have contacts in a vast number of the Fortune 500 companies," he adds. "It's these kinds of things that help start-up companies access the right people to help them develop their business. If you have six or seven of us in a room with a developing company, we can help them get to the right people for advice and contacts, and formulate a business plan in a much more expeditious way."

Many traditional venture capitalists don't have the time or patience to spend that much time coaching new and young tech entrepreneurs, explains Richard Koffler, a five-year TCA member.

Angels give more personal attention because they are investing their own personal money, says Mr. Koffler, a Peruvian-born entrepreneur with computer science degrees from the University of California at Berkeley and MIT who began his investing career after selling his own software company in 1998.

One company he has invested in is LatinoLA.com, a community Internet portal for Hispanics in Southern California that includes information on everything from healthcare and business to technology, finance, and dating. In this case Mr. Koffler, now LatinoLA.com's CEO and a board member, says he helped fund the company in 2000 because he strongly believed in founder Abelardo de la Peña.

"He had what it takes to turn his idea into a successful company," says Mr. Koffler, adding that "You need to have large volumes of traffic to sustain this kind of business," and the potential was there in the form of Southern California's incredible Hispanic population.

A Safer Investment

A strong network of qualified and experienced industry leaders is one of the best benefits of investing through a group like TCA, Mr. Koffler points out. "In terms of finding the right opportunities and making them happen, I feel like doing that within the TCA is a safer investment," he says.

"The value we give to the companies we work with is we help them grow to great successes," Mr. Koffler concludes. "We help them to where they can provide a good living for their employees and their shareholders. The fact that I had something to do with the success of a company feels good."

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