Angel investors outline advantages of privately funding new companies
Advocates for the high-risk “angel investing”—writing personal checks to fund startups and small businesses—told attendees of the Baton Rouge Area Chamber’s monthly luncheon today that private funding can give startups a much-needed boost and the money is typically funneled back into communities if those companies are successful.
Many entrepreneurs have few options for raising money for their business venture aside from angel investors, said Mike Eckert, chairman of the NO/LA Angel Network, a group of 135 investors. That’s where his group of private investors comes in, with the network finding entrepreneurs and connecting them with people who can write the checks.
Eckert pointed out that 50 to 80% of startups fail, leaving those investors empty-handed.
“Amazingly, angel investors still give them their money,” said Eckert, who has been an angel investor for more than 20 years. “We accept the high likelihood of loss, of dilution—they think we’re crazy to take that risk.”
But the businesses that succeed more than cover the losses, he said. Starbucks, Skype, Yelp, PayPal and Amazon are among the companies that received angel capital in their early stages, he said.
“If one of these companies makes it and makes it well, it will cover the losses of the rest,” he said.
Angel investors typically make money when the companies in which they invest are sold. In 2015, more than $20 billion was invested in more than 74,000 deals in the U.S., Eckert said. There are currently more than 316,000 such investors throughout the country.
Louis Freeman, CEO of the nonprofit Innovation Catalyst, said Baton Rouge and New Orleans have a rich network of young investors ready to fund startups. Plus, he said, money invested from “angels” typically is funneled back into the community in the form of new startups.
Louisiana has attracted entrepreneurs from throughout the country in the last 10 years, Freeman said, mainly through business tax incentives. His organization is challenging people to create business ideas generated from the recent flooding disaster, he added.
“There are a tremendous number of young investors who are attracted here for the lifestyle, the ability to do what they want to do in a place they can afford to live,” Freeman said. “I think the entrepreneurs we see are very enthusiastic.”