Does Richmond need an angel investor group?

If you had a great idea for a new product or business, how would you get the money you needed to turn that idea into reality?

If you’re fortunate maybe you have some savings to cash in. If you’ve got a great credit history, maybe you can find a bank to give you a small business loan. Perhaps you have a network of friends and family who will chip in to help. If your idea is particularly simple and exciting, maybe you can find the resources you need through crowd-funding.

But for many people, these kinds of head starts can be hard to come by. I’d guess that to be especially true for younger people who are perhaps most likely to both have a great entrepreneurial idea and be at a point in life where the risk of pursuing it is relatively low. If they can’t find funding to pursue a business idea, they may not get very far.

So it leaves me to wonder: as a part of our efforts to encourage entrepreneurship and the creation of small businesses here, would the Richmond area benefit from an angel investor group?

If you’re not familiar with how an angel investor group might work, think of it a little like the deals that go down on the television show “Shark Tank” (but without the theatrics, posturing, time-pressure and disrespectful interactions). Someone comes up with a great idea for a product or service, and does some initial ground work to show that it’s commercially viable. They bring the idea to the group and its investors, and make their case that supporting the idea is a worthwhile venture. The group’s investors decide for themselves if this is true, and make a decision about offering funding and expertise to help launch the new business. In some cases, the offer of support comes in exchange for partial ownership of the resulting venture.

Such a group could be a way for already successful and financially-secure individuals and corporations to invest in the future of the community by helping to fund the launch of new businesses here. It could help take people from having dreams that are out of reach to new ways of making a living and seeing their ideas become an actual business. It might even result in some private sector solutions to some of our more pressing public sector challenges.

There are already versions of this kind of support and investment happening informally across the city today. An established business owner might give a start-up some un-used office space at discounted or free rent (and this incubator approach even helped me start a business here back in the late 1990s). The Innovation Center provides below-market rent and business start-up assistance to new and early-stage businesses (full disclosure: I’m a financial supporter and sit on an advisory committee for them). The East Central Indiana Small Business Development Center (say that five times fast!) provides support and services to start-ups, too. Earlham College recently announced that it would offer up to $40,000 in seed capital for world-changing business ideas. You could even think of what the Wayne County Foundation does with its annual grant-making programs as providing angel funding to help the local not-for-profit community innovate in the services they provide.

So we have examples of this kind of offering already at work in Richmond and Wayne County. What would it take to start an actual angel investment group here?

At a basic level, it would be a matter of finding enough people with money to invest and who want to participate in this model. I think we are a community full of generous people who already give substantially of their time and money, so some of those individuals might be able to continue giving/investing at existing levels, and would just have to see the value in this slightly different approach. Others might need to give a little more, and still others might find this concept as a reason to invest/give when they haven’t in the past.

Of course, investing is by its nature a risk-oriented activity, and all involved parties would need to be educated on the dangers and possibilities for loss that are involved. Some people even say that almost no one should engage in angel investing. We’d also want to make sure that the angel funding approach wasn’t used to prey on naive entrepreneurs to take disproportionate control over their creations.

But if we know the interest is there and everyone is going into it with eyes open, the logistics and mechanics of setting up an investing group is something the Kauffman Foundation has already explored, researched and published in-depth guides for. They even created the Angel Resource Institute that has published guides and books on the exact steps to take to start an angel investing group. What’s more, there are other angel groups all over the Midwest and beyond, so we could network with some of them to better understand the landscape of angel investing in our region.

What do you think? Is there a need for an angel investing group in our area? Would having this new kind of funding approach as an option make a positive difference in the creation and growth of businesses here?