Charlie Banks was rolling into the Cape Fear when he put a question out to Twitter:
“Anyone know anything about the startup scene in Wilmington, NC? I’ll be here for a week.”
It wasn’t long before Banks, visiting from Columbia, South Carolina, was sharing tables with various players in Wilmington’s wired entrepreneurship community telling of his organization’s up-to-$5 million fund that could infuse worthy startups here.
“Very simply, we’re looking for passionate entrepreneurs with industry expertise who are providing compelling solutions to needs in a large and expanding market,” Banks said on behalf of the Palmetto Angel Fund, managed by Banks and fellow angel investors expanding their reach into the Tar Heel State.
With Wilmington’s startup scene going into overdrive per last year’s opening of the UNCW Center for Innovation and Entrepreneurship, and more recently the tekMountain business incubator near Mayfaire, deal-seeking “angels” are beginning to gather.
That’s not to say they’re entirely new here–they’re not–but the topic of angel investments is getting more play with the local news-reading public. Subsequently, angels from outside the area, like Banks, are noticing. At the same time, startups and facilitators are looking for new angels to work with and are hoping more individuals of wealth will get into the game.
When it’s good, everyone–the community in general–can benefit, they say.
“An angel is a high net-worth individual who invests his or her own money in start-up companies in exchange for an equity share of the businesses,” defines the Angel Capital Association, a resource group for accredited investors.
Without them, “We would still be an idea on paper,” said Will Smith, CEO of WaterPlay USA, a Wilmington-based startup that in May announced it had raised $400,000 to fuel the company’s push into the national travel market.
Launched in April 2013 (after which it raised an initial $125,000 from angels and other sources), WaterPlay today counts itself “the largest platform for booking water-related tours in the United States.”
“We don’t just invest in somebody’s wild idea; they have to take it some place further where we get really excited,” said Michael Cain, a former prosecutor and chain restauranteur who more than 10 years ago founded the Wilmington Investor Network (WIN), a group of Port City-based angels.
It’s a lot of money, and a lot of risk.
“We know that a third of our deals we’re going to lose all our money on,” said Dallas Romanowski, manager of IMAF Cape Fear (standing for the Inception Micro Angel Fund network). “Another third of our deals, it’s going to be getting some of our money back to getting all of our money back. It’s that top third where we actually make money, and it’s on that top 5 to 10 percent where you’re hoping you hit the home run.”
One of IMAF Cape Fear’s investments is Wilmington’s Next Glass, the surging app that, with scientific precision, helps its users find new favorite beers and wines. The company–launching the app soon–is in its second fundraising round with an undisclosed goal.
Kurt Taylor, Next Glass CEO, said working with angel investors establishes an intimacy and edge that a business would never get with a bank loan or other, cold source of capital.
Angels are often knowledgeable, connected and know what they want to see in the companies they buy into, Taylor said. Next Glass has 35 to 40 angels or funding groups at its side.
“They help us in a number of ways: making introductions and helping us form partnerships and helping us get more involved with the community and any number of things to help us grow the company,” said Taylor. “A lot of it is through that; it starts to build on itself when you get people who are really passionate about your idea or tech company you’re starting.”
Angels see it that way, too.
“That’s the idea. We’re investing for a return, but at the same time we like to be closer to the companies, rather than just investing in the stock market,” said Cain of WIN. “It’s exciting. It’s rewarding. It’s very, very mentally challenging in the sense that you’re learning something new in an area that you never knew about.
“So it’s very intriguing for [WIN’s] members to see the appeal.”
Romanowski of IMAF Cape Fear had a similar observation.
“The best use of our money is when you can use our time, talent and treasure, so if we can have someone involved with a company in an advisory role, or even a more active role, they’re going to get a lot more bang for the buck,” he said. “So angel investors do, I think, really help these companies.”
But that’s only part of the equation. Angels, Romanowski and others emphasized, aren’t a charitable source; they’re buying in, want to make money and want to know their investment is wisely used. That means companies pitching for angels’ resources need to be on their game.
Investments, he said, average between $250,000-$500,000 each, though some deals are larger, he said. The only way startups can get them is by showing they have in-demand solutions to problems–and well-directed, non-Pollyanna plans to that end.
That means angels aren’t into holding startups’ hands unless it’s quite worth it.
“We approach a lot of folks really at just the idea stage, and they’re going to pitch angels, and they’re wanting that kind of help,” said Romanowski. “Well, we’re in the business of investing in these companies, and there’s not many companies that we’re going to want to sit there and roll up our sleeves and work with before we invest money. They [the unseasoned companies] need to look for some other resources to do that.”
The UNCW Center for Innovation and Entrepreneurship was the oft-mentioned example. It opened in September 2013 to offer low-cost office space to startups who may consider it a common environment for problem-solving–that is, they as new businesses may face myriad challenges they can help each other out with as peers. The CIE also offers expert mentoring, planning and connections that could accelerate their growth.
And newly opened on the top floor of the new world headquarters of Castle Branch off Sir Tyler Drive is tekMountain, a similar incubator geared to raise tech startups. Five are aboard right now, and more are about to move in, a spokesperson said.
Although most of WIN’s investments are outside of North Carolina, Cain said the support system now in place bodes well for Port City startups.
“I think we’re going to have a lot more activity, and a lot wiser activity,” he said of Wilmington. “The more programmers or designers you have who are in an incubator who can help each other and work together and solve problems, the better off they are.”
Banks, of the Palmetto Angel Fund and South Carolina affiliates, said CIE and tekMountain impressed him during his visit.
“With programs such as CIE and tekMountain, it seems as if there is adequate resources for an entrepreneur to lean on during the conceptual phase of a business, as well as support systems and capital to leverage during the development/growth phase. These are important for any entrepreneurship ecosystem, and it seems as if Wilmington has really embraced this.”
And these churned-out startups here will be looking for angels.
To be an angel
Jim Roberts, executive director of the CIE, which has 21 companies aboard, said he’s always searching for new investors who dare to take risks.
“If a $30,000 investment is going to keep you up and wake you up at 2 a.m., then you are not a risk taker and this investment option is not good for that investor or especially for the entrepreneur,” Roberts said. “But if you are a high-net-worth individual that likes some risk for potential high return and want to keep their kids and grandchildren in Southeastern North Carolina….”
Smith at WaterPlay USA emphasized the importance of respecting investments. At his small office off Peachtree Avenue, with six employees handling the growth, he said “We’re only spending what we have to.”
Taylor said having outsiders invest in his company is all the incentive in the world to stay on track and grow to, or beyond, expectation.
Said Romanowski, “An angel investor wants to see a viable path to a 5- to 10x return within 3 to 5 years.”
“Start, build, grow, sell,” said Roberts. “Entrepreneurs generate wealth, investors make money, employees can now start new companies who know the original entrepreneurs and can invest, and the cycle starts again. Start, build, grow, sell … over and over.”
To invest as such, one must be an accredited investor, someone who has a net worth of at least $1 million or makes $200,000 or more a year, according to the Securities Exchange Commission.
Romanowski said Cape Fear IMAF, for instance, can make risk more palatable for members by spreading, say, an individual’s $25,000 over a variety of different companies, meaning smaller investment stakes.
(Efforts are also moving through the N.C. General Assembly to widen crowd-funding opportunities–click here to view what’s pending.)
Roberts, who used to manage an Asheville-based angel resource called the Blue Ridge Angel Investor Network, advises anyone interested in being an angel to read up on the topic (via the Angel Capital Association) and touch base with the CIE (here), WIN (here) or IMAF Cape Fear (here). All three entities work together.
Banks said startups or other interested parties may contact his group through this link.
CIE, for its one-year anniversary, will on Sept. 4 hold a conference in Wilmington that will feature companies pitching to investors in a live setting, among other entrepreneurship features. (Click here for information.)
Asked whether he found any startup gems during his visit to Wilmington, Banks said, “Yeah, I’ve been talking with a few.”