Realizing a VISION

0614angel_investor

Successful ventures launched through non-traditional financing

Story by Larry Avila, New North B2B editor

For some people, the thought of cooking is frightening especially when paired with lack of know-how and time spent in a kitchen is limited to tossing frozen meals into a microwave.  

This was the case for Matt Howard of Larsen, Eric Martell of Whitefish Bay and Alex Wyler of Mequon. When the trio was attending the University of Wisconsin-Madison, none had great cooking skills and like most college students, often turned to take out to eat.

Martell said he and his friends tried to place orders online but at the time, about five years ago, many didn’t offer that service. That inspired the then-students to develop software to help restaurants offer online ordering.

“We partnered with some local restaurants (and) launched Badgerbites.com,” Martell said. The business, launched in 2010, evolved into EatStreet.com, which today partners with restaurants across more than two dozen states.

EatStreet.com didn’t get to where it is today without help. The company received some funding from angel investors, typically high-wealth individuals who receive an ownership stake but also provide business expertise and guidance to a fledgling business with growth potential.

The assistance was welcome, Martell said.

“As young entrepreneurs with limited credit, this was a natural route to go,” he said. “Moreover, when you take an angel investment, you not only gain the capital, you also gain the insight of a successful individual.”

Martell said he and his partners were introduced to Oshkosh-based Angels on the Water through Joe Kirgues, an early investor in the company, and the law firm Michael Best & Friedrich.

Aid for start-ups

Angels on the Water formed in April 2011 and began investing in 2012, said Elizabeth Hartman, fund administrator for the angel investment group.

She said Angels on the Water invests in early stage companies with high-growth potential.

The organization also provides management assistance and advice to entrepreneurs.

An attraction for investors to companies like EatStreet.com is the growth potential.

Elizabeth Hartman said Angels on the Water must see the potential upside of a return of 10 times an investment to compensate for the high risk. The group usually invests between $20,000 and $100,000 in a business and today has a portfolio of 19 companies.

Angels on the Water prefers to invest in businesses based in northeast Wisconsin, but has provided funding to firms around the state.

Venture capital investors take a different approach than angel firms. Venture capitalists also seek high-growth businesses, but seek investments that meet specific criteria established by the firm’s investors and management.

In the case of Little Chute-based NEW Capital Fund, launched in 2006, it wants to invest in businesses involved in advanced manufacturing and information technology as well as material and biological sciences.

Charlie Goff, president of NEW Capital Fund, said many deals are referred to his firm but some don’t fit with its investment criteria.

“We do seek out advanced manufacturing opportunities, something that has intellectual property or a proprietary advantage,” he said. A business with something proven and original that it developed, which has potential markets, can lead to a good return on investment.

Cash infusion

Aurizon Ultrasonics in Kimberly, which produces equipment that utilizes high-power ultrasonics or sound waves to perform industrial processes, was spun off out of consumer products giant Kimberly-Clark Corp. in August 2009, said Greg Benrud, president of Aurizon. That would not have happened without access to venture capital from NEW Capital Fund.

“Without access to venture capital, Aurizon’s ultrasonic technology and know-how would likely still be resident within and exclusive to Kimberly-Clark,” Benrud said.

K-C now outsources its bonding equipment supply and support to Aurizon.

“The funding provided by NEW Capital Fund made the spin-out from Kimberly-Clark a reality,” Benrud said. “In addition, we were able to leverage (Goff’s) experience with local resources to create the infrastructure necessary to get the business up and running as an independent business unit.”

Business investment from angel and venture capital firms is rising in Wisconsin.

The 2012 edition of the Wisconsin Portfolio, an annual publication of the Wisconsin Technology Council through its Wisconsin Angel Network, reported angel groups invested more than $61.1 million in state companies during 2011, up from $50.2 million the previous year.

Venture capital investments totaled $91.7 million in 2011, down from $130.7 million in 2010, according to the Wisconsin Portfolio.

Another funding alternative

Jessica Dennis, an entrepreneur who co-founded Red Shoes PR in Appleton, in 2012 launched Charitabli, a website which uses social media to raise money for non-profit organizations through crowd funding.

She describes what Charitabli does as collecting smaller donations from large groups of people. Since Charitabli launched, it has raised about $40,000 cumulatively for about 25 non-profit organizations.

Crowd funding was used by Brian Davis of Appleton to raise capital to make his idea reality. He developed Fix-It-Sticks, a portable tool kit designed for bicyclists to carry.

Davis used a crowd-sourcing site called Kickstarter to help spread the word about his invention and to raise money to mass produce it.

Neenah-based Charitabli takes a similar approach but instead provides another fund raising vehicle for non-profit groups.

“We started Charitabli because we felt a lot of non-profits in the Valley weren’t utilizing (crowd funding) like others were around the country,” Dennis said. “It’s growing in awareness and we just wanted to educate people on crowd funding and how they could utilize it as another source of donations.”

Awaiting the payoff

Investors seek a return on investment.

Hartman said the objective of Angels on the Water is to make money.

“Many of our investors also enjoy being involved with entrepreneurs and helping new business grow,” she said.

Martell said Eatstreet.com’s revenues are generated by collecting 10 percent of an order as commission from a participating restaurant.

“If someone orders on Eatstreet, it costs them the same as it would to order over the phone or in person at the restaurant,” he said.

Martell said any company with investors needs to find a liquidity event for its shareholders.

“For us, this would more likely be the sale of the company (and) less likely be an IPO,” he said. “Because of our rapid growth, our investors have been very patient and supportive in our expansion efforts.”

Martell said Eatstreet.com’s focus is to grow its restaurant base, which added 4,000 restaurants so far this year, as well as expand its consumer base and grow revenues.

“If we successfully execute on these three goals, we’re confident that our investors will get a great return,” he said.

Awareness rising

Goff said there is better awareness of funding resources for businesses outside traditional lenders than when the venture capital group launched eight years ago.

“We see plenty of deal flow and there are people looking for equity but with that said, a lot of those deals that come to us don’t meet our investment criteria,” he said.

Goff often refers business to organizations like Angels on the Water.

Hartman said Angels on the Water has attracted investors from around the Fox Valley including some from the Milwaukee and Madison areas.

She said her group also receives leads from other investment firms as well as business startup and accelerator programs including Gener8tor, which has offices in Milwaukee and Madison.

Hartman said Angels on the Water does not advertise but networking with organizations including Gener8tor helps raise awareness.

“We do not engage in any active marketing because we typically have no trouble getting quality deal flow,” she said. “Those opportunities come to us through (our) website, word of mouth, relationship networks and Gener8tor.”

Hartman said the state’s climate for angel and venture capital investing appears to be improving.

“By investing in entrepreneurs, you’re growing your own while strengthening our entrepreneurial ecosystem, which in turn will attract more entrepreneurs and capital to our state,” she said.