A cluster of angels

angelinvest

This Monday morning 22 persons, prospective angel investors and accompanying seraphim, met in an ex-IBM conference room at 300 Enterprise Drive at TechCity to discuss creation of a venture capital fund for the mid-Hudson region. Ten tables had been combined into one, and each being celestial and otherwise comfortably occupied an identical leather, metal and plastic chair around the resulting long table. The gathering heard from Dick Frederick and Joe Richardson of the Eastern New York Angels (ENYA), managing partners of an Albany-centered member-managed seed investment fund which had raised $1.4 million four years ago and invested $50,000 to $250,000 in each of seven local early-stage tech firms. According to the Albany Business Review, ENYA has now raised a new round of $2.5 million to invest in four or five new businesses plus those it previously supported. So far, the newspaper said, 22 of the 35 investors in the original round are also on board for the second one.

The mid-Hudson group’s financial goal is more modest. It is seeking 30 seed investors willing to invest $25,000 each to participate in a regional fund. Meeting attendees were encouraged to sign a non-binding indication of interest.
Tony DiMarco, an ex-IBMer who has been director of strategic initiatives at Marist College for the past five and a half years, organized the Ulster County event. Trying to stimulate broad investor interest, DiMarco has been doing the same in the other mid-Hudson counties. Investor networks in Orange and Dutchess counties which had been started folded in the 2008 recession, DiMarco noted.
Two local presenters gave eight-minute pitches to the potential investors. Gabriel Heymann is founder of the New Paltz organic craft beer company whose flagship beer is Organic Golden Ale. Kate Bradley Chernis, ex-competitive rock climber and ex-DJ, cofounded a Stone Ridge marketing management software startup designed for the do-it-yourself sector called Lately, Inc.
Next Thursday, April 23, Vermont angel investor and venture-fund veteran Charlie Kireker will be keynote speaker at a three-hour capital forum at Marist’s Goletti Theatre sponsored by the Upstate Venture Association of New York (UVANY). His talk will be called “The art — and science — of angel investing.” Nasir Ali of Upstate Venture Connect will explain angel-fund investing. There will also be entrepreneur pitches at the event, which is scheduled from 5 p.m. to 8 p.m. Attendees are welcome.

These events are part of a broader effort to grow a more robust investor culture in the Hudson Valley.
If you don’t have a successful economy, it often takes a long time and considerable focused effort to build one. The mid-Hudson Valley, the seven-county region still struggling to recover in the post-recession environment, is exploring approaches that might bring success. Tony DiMarco’s goal is simple: create 10,000 new high-paying jobs in the mid-Hudson region in the next ten years. His is a hands-on process. You do it by doing it.
Young high-growth companies are an area with significant potential. Such firms usually run in the red in their early existence, lacking the revenues to pay their expenses and needing capital to evolve. Having borrowed what they could from friends and relatives and having maxed out their credit cards, these entrepreneurs don’t have the collateral to secure conventional financing. They look to non-bank sources of financing, including various sources of private equity.
Particularly important at the first stage of new and emerging businesses is the participation of high-net-worth individuals. These so-called “angel investors” are sometimes organized around funds, like ENYA, that spread their investments among several high-risk fledging enterprises.
Of all non-bank financial sources, venture capital seems to have had a disproportionately large impact. It’s certainly gotten a lot of press. Though growing rapidly in such hinterlands like upstate New York, venture capital is a relatively small financial source. Its national association says that only 1200 firms annually use it.
It is often explained that venture capital is long-term investment (“patient capital”) willing to wait until new enterprises mature into profitability. Typically, these investors contribute not only capital but also other forms of value such as technical or market knowledge, personal connections or business experience. ENYA involves its members — who meet monthly — in providing various forms of support.

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DiMarco’s approach differs significantly from the cluster approach espoused by most of the region’s specialists in economic development and supported by the state government’s economic-development apparatus. The latter’s focus is on regions identifying industries and supporting players who can benefit from their mutual proximity and connections. Thinking about clusters orients policy toward groups of firms rather than individual firms. It’s helpful in diagnosing a region’s strengths and weaknesses and identifying how public policy can foster a constructive economic environment.
The cluster approach is built around the strengthening of the existing economy. It’s not always as useful in looking to a changed future: new ideas, new forms of organization, new technology. What’s now termed disruptive innovation has been sweeping through an increasing number of economic sectors.
Economic health depends on both continuous improvements to an existing economy and disruption of it — what the great Joseph Schumpeter called “creative destruction.” Existing industries adopt disruptive new methods of organization to benefit from change. Even more importantly, new technologies create new markets and value networks that totally disrupt existing ones. Greater value often comes from new enterprises: The market value of Apple, Google, Facebook, Amazon and Microsoft alone could buy one the economies of a bunch of pretty good-sized countries.
Investment in companies with high-growth potential has been spreading recently from small geographic bases to new areas. More than half the venture capital offices in the United States are located in three metropolitan areas: San Francisco/San Jose (more than the other two combined), New York and Boston. According to 2008 data, 49 percent of the U.S.-based firms financed by venture capital were in these three same areas.

Might there be special opportunities for investment in an area that happens to be less than 100 miles from one of those centers and less than 200 miles from another? What do you think?

The author agreed not to disclose the names of the individual prospective investors attending the meeting on Enterprise Drive without their individual permission.

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