Down to Business: Entrepreneurs seek backing for 'angels'

PHOTOGRAPHER: Marlene Kennedy

Richard Frederick is a former health care executive who subsequently founded and ran software and Internet firms. Joseph Richardson is a longtime banker who retired last year and now advises on private-equity deals. Together they aim to help promising local companies navigate “the valley of death” — the period between small-time financing by family and friends and significant investment by a venture capital firm.

To do that, though, they’re looking for folks willing to pony up $25,000 or more to get their new enterprise, Eastern New York Angels, launched by Jan. 1 as a $1 million “seed” fund to invest in early-stage companies that can boost the local economy with jobs and a can-do entrepreneurial spirit.

And getting those investors a return of two to three times their buy-in is no small goal either.

The men want to grow the fund to $3 million to $5 million and make investments of $50,000 to $250,000 in four to six companies annually. The companies must have a product or service ready for market, a strong management team, a business plan, and a willingness to become an acquisition target in three to five years — an “exit strategy” that will return money to the fund and its investors.

Targeted business sectors include technology, software and manufacturing; retail or “mom and pop” stores will be passed over. Companies selected for investment must be willing to be mentored by the fund or risk losing access to it.

The fund is modeled after two that are nearby: Seed Capital Fund of CNY LLC, founded in Syracuse in 2007, and Cayuga Venture Fund in Ithaca, dating to 1994 and closely identified with Cornell University. Like Eastern New York Angels, they seek to grow the economy by helping start-ups get access to capital.

“We have the quality [companies]; we didn’t have the dollars,” says Frederick, pointing out the Syracuse fund has invested in two Capital Region firms.

“Angel” investing is nothing new here. The Tech Valley Angel Network was started in 2001 by a handful of local businesspeople who saw a need to help entrepreneurs finance their dreams. But over the years involvement began to flag, and TVAN, as it was known, was put under the wing of the Center for Economic Growth in 2005. By last year, it had become a supper club that met monthly, Richardson says; he made the only investment recorded by the group in 2009.

But both TVAN and the Center for Economic Growth are behind Eastern New York Angels, the men say. They received a $10,000 grant from the center, which also is providing back-office support and managing the website (www.easternnyangels.com).

Frederick identifies the area to be served by the fund as stretching from Glens Falls south to the Mid-Hudson Valley and west to Montgomery County. He and Richardson have been on the road lately talking up the fund and identifying likely investors. To date, commitments total about $350,000.

Investors need to be what regulators call “accredited”: have $1 million in net worth and $200,000 in annual income. Richardson says that definition encompasses many successful middle-class businesspeople; Frederick says they could be in real estate or stock but want to diversify.

Both also cite another characteristic for investors in their fund: boosters of the local economy.

“The region lags the rest of the state when it comes to starting new business ventures,” Frederick says. “The reason, in large part, is the lack of investment capital and experienced mentors that these early-stage companies need in order to accelerate and grow their businesses.”