'Angel' investors help Minn. start-up businesses

By CANDACE RENALLS, Duluth News Tribune

DULUTH, Minn. (AP) - John Foucault looked long and hard to find "angel investors" to help take his Duluth software development company to the next level.

He needed capital to develop new products that would make Points North not just a regional player, but a national one. And getting a loan through traditional financing is unlikely for software firms whose product is intellectual, not tangible.

"Banks are not interested," he said.

Moreover, the lack of a formal system made finding these anonymous angel investors difficult. But by word-of-mouth, Foucault eventually found a local "angel" who came on board. And that has made all the difference.

"The capital allowed me to build these products which got the attention of a wider audience," said Foucault, Points North's CEO/president. "It allowed us to increase our sales 25 to 30 percent with national customers as opposed to regional customers."

But the formation of the Minnesota Angel Network, announced recently, will make it easier for promising young businesses like Points North to hook up with anonymous investors who help them get off the ground. The statewide web-based portal is hosted by the BioBusiness Alliance of Minnesota.

And it has gotten those involved in fostering business development in the Twin Ports region excited.

"Angel investing is a huge tool that we need in this region," said CEO Rob West of Area Partnership for Economic Expansion. "The entire Northland has suffered because we haven't had access to early-stage capital. And this network provides this opportunity. And that is huge."

Eighty percent of all new jobs are in businesses that did not exist five years ago, he noted.

"So spawning new businesses and entrepreneurs is absolutely critical to the growth of our region," he said. "Having this network is a huge opportunity and a step forward to access capital and create jobs in our region."

The network, which goes live July 1, already has 350 accredited investors listed, West said. Its formation comes on the heels of the state Legislature's passage last year of an angel investment tax credit of up to 20 percent.

"It goes a long ways to encourage people to put money into early stage businesses," West said.

It's not, however, about helping a small store start up. Resources like the Northeast Entrepreneur Fund help with that sort of thing, noted its president Mary Matthews.

"It might be how to grow a retail business into a Maurices," she said. "You could qualify if it's a really unique idea. But the assumption is you've gone through family and friends first, then bank-like loans, then comes angel investors, then venture capital. At each level, there are fewer and fewer businesses that have the need for that kind of money."

So how much money are we talking about?

"Up to millions," Matthews said. West said a pool of 10 angel investors might put in $50,000 each for a $500,000 investment.

Northland agencies like the nonprofit Northeast Entrepreneur Fund will be able to help qualified businesses access this money.

"There's not that many businesses in the region that would qualify for the kind of financing the network would have available," she said. "But if we're able to secure angel money for 10 businesses a year, we would be helping grow high technology jobs and potentially higher-wage jobs at a faster pace. We're growing some of those now, but this will help some of those existing businesses grow faster and go farther."

"If we can do that," she continued, "as opposed to them moving to the Twin Cities or California to access this kind of money, it's a big deal. And it's part of the tool box that we need

The angel network, if it had existed several years ago, might have helped Foucault's company. But maybe it can help the company now, he said, as it looks to grow further, developing data solutions for businesses.

"It's not an easy road," he said of finding investors. "They're mainly looking for traditional investments in the bio-medical industry, tourism and in brick-and-mortar as opposed to software and technology."

But, Foucault said, his company will look to the new Minnesota Angel Network for possible investors.

"We know what we want to do next, but we don't have the capital to do it," he said.

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Information from: Duluth News Tribune

(Copyright 2011 by The Associated Press. All Rights Reserved.)