On television, entrepreneurs who need money enter the Shark Tank. In real life, they turn to angels.
Like Mark Cuban and his fellow sharks on the popular television show, angel investors hear pitches from budding business owners hoping to create the next big thing. But unlike TV’s sharks, these local financiers don’t try to outmaneuver each other to snag the best deal. Instead, they put their heads together to discover the best opportunity.
In Dallas and Fort Worth, angel investors are pumping millions of dollars into a bevy of startups, from an Austin drug company developing a treatment for MRSA to a Fort Worth company whose technology was recently used to disinfect apartments against Ebola.
It’s local money backing local innovation—a much healthier way to spark technological growth than government-funded efforts like Texas’ Emerging Technology Fund, which has been criticized for a lack of transparency and political cronyism.
Many of the angels started successful businesses themselves and now want to invest a in promising new ideas. There are also doctors, wealthy families, and retired executives like Frank Miller, who cashed in his stake of a construction-products company when it was sold and now invests as a member of the North Texas Angel Network in Dallas.
NTAN has more than 50 members who gather each month at the Bent Tree Country Club to hear Shark Tank-like presentations from companies typically seeking $500,000 to $1.5 million, says Chuck McCoy, the group’s executive director.
“I wanted to make a buck and I wanted to learn and do something different,” Miller tells me. He has invested in seven or eight companies including Savara, which is developing the MRSA drug called AeroVanc.
In Fort Worth, Cowtown Angels has injected more than $5 million into nearly a dozen companies since it was formed two years ago, says Darlene Boudreaux, executive director of Tech Fort Worth, a business incubator. A successful entrepreneur herself who sold the Grand Prairie drug manufacturer PharmaFab, Boudreaux knew the value of connecting entrepreneurs with local investors and launched the Cowtown Angels network out of Tech Fort Worth. Both NTAN and Cowtown Angels are part of a statewide alliance, so deals can be shared with angels in Austin, Houston, and elsewhere.
The Fort Worth group has about 30 members, including Les Kreis, a 43-year-old Fort Worth native who worked for 12 years at a Dallas hedge fund before launching Steelhead Capital Management. When a friend called to tell him about the Cowtown network, he became an early member and now serves on its steering council.
Generally, Kreis says he and other Cowtown Angels investors are looking for opportunities to make 10 times their money over a five-year period. Because not all early-stage companies pan out, he says, angel networks allow investors to make a number of small investments and spread out the risk. So if half the investments end up as zero, the winners make up for it.
Being part of a group also allows investors to share their expertise. So, for example, while a physician can evaluate the viability of a new drug or medical device, a finance expert like Kreis can provide an accurate valuation. “It is, in my opinion, an exercise in collective capitalism,” he says.
Kreis also likes to back local companies that can enhance the Fort Worth economy. One is Encore Vision, which is developing eyedrops to treat presbyopia, the condition that causes people to need reading glasses. Cowtown Angels has provided $1.75 million in funding for Encore.
Another is E-Mist Innovations, which developed the proprietary spray technology used to disinfect the Dallas apartment of Ebola victim Thomas Duncan last fall. One of the Cowtown Angels, George Robertson, became so enamored with the potential that he agreed to become its CEO.
So, what do these angels think of TV’s Shark Tank? Generally they like the show, but recognize it’s just reality TV. Kreis says the valuations placed on companies often don’t make sense. And while the sharks are often aggressive, “we’re very gracious,” he says.
Boudreaux says although there are similarities in that businesses are asking for money and investors are asking questions, “the difference is that the angels aren’t competing with each other to put their money in. It’s much more collaborative in the real world.”