MUSKEGON — A new angel investment group formed in Muskegon has $550,000 in the bank and is ready to invest in companies and ideas.
Muskegon Angels could close on its first investment this spring and hopes to do two or three deals a year, putting $100,000 to $200,000 on average into companies that have the potential to grow and create jobs in the area.
“We’re ready to go, so if you’ve got a hot deal …” said Larry Hines, quipping to the audience at the launch of the program.
Hines, the owner and president of Hines Corp., said he recalls talking to people as far back as 15 years ago about forming an angel investment group in Muskegon to spur business and job creation.
“It’s an idea whose time has come,” Hines said. “It’ll be interesting to see what’s really out there that is kind of below the radar that doesn’t really get talked about. It’s an idea but it just never really comes to fruition because there’s not enough initial funding there to get it up and going.”
Hines and Mike Olthoff, president and owner of Nichols Paper & Supply in Norton Shores, began discussing in earnest the potential creation of an angel group about a year ago and decided “why don’t we just do it.” Muskegon Angels today consists of 22 individual investors who each committed $125,000 over five years, or $25,000 annually, creating a pool of capital totalling $2.75 million.
The inflow of $550,000 annually “should make a significant impact,” said Eric Seifert, a finance and strategy specialist with the Michigan Small Business & Technology Development Center in Muskegon who helps small businesses access credit and capital.
Seifert will work with Muskegon Angels to vet prospects, help them with business plans, and to make investment decisions.
The goal for Muskegon Angels is to help businesses owners move “to the next level” with an infusion of capital and to support early-stage companies with an “initial idea that’s really got some merit,” Olthoff said.
The group’s investment focus is on local growth in advanced manufacturing, technology, food processing and “water-related innovations and businesses.”
“We all felt that there needs to be a place where entrepreneurs — startups and existing businesses — could come for possible gap financing. These are businesses that need that initial or additional help to get to that next level of success,” Olthoff said. “We know there are people in the community who have an idea or a concept, but where do they go? There are going to be folks in Muskegon to say, ‘Yeah, there’s a place right here in Muskegon I can go for this.’”
Muskegon Angels joins four existing angel networks in Michigan that seek out and vet deals for members who then invest individually in a company, although it will operate differently than the traditional angel model. Rather than individual members investing in a company once it’s vetted, the organization as a whole will make the investment.
Angel investors also typically spend time mentoring the entrepreneurs behind the businesses in which they invest. Hines and Olthoff say the mentorship aspect will become a key element of Muskegon Angels as well.
“If you look at the experience of this group, it’s pretty substantial,” Hines said. “If we can hook one or two of these (entrepreneurs) up to help, many times that’s more important than the funding because there’s going to be bumps along the road. And if you’ve got someone who’s fairly experienced who’s been there before, they have a pretty good idea to know what to do.
“We want them to succeed, and we’re going to work hard to make sure they succeed.”
Muskegon Angels will operate out of Grand Valley State University’s Michigan Alternative and Renewable Energy Center in downtown Muskegon and with the assistance of GVSU’s Center for Entrepreneurship and Innovation and the Michigan Small Business and Technology Development Center.
Even in instances where Muskegon Angels passes on an investment, individual members may still put some of their own money into a company, or the group can refer a prospect that isn’t ready for angel investment elsewhere to financing.
“Part of the strength of what we’re doing is trying to have kind of a one-stop shopping spot where people can come and get help to finalize their business plans and look for other sources of funding, if they need it,” Hines said. “With a group of 22 people, we know a lot of people.”
The group also intends to maintain flexibility and could make investments smaller than its $100,000 to $200,000 target range. Though its primary focus is West Michigan, Muskegon Angels will consider deals outside of the area, if the potential return is right and it “might help the overall fund performance,” Hines said.
“We are pretty open-minded. We don’t want to have any predisposed notions,” Hines said.
If successful and generating financial returns, organizers hope they can grow Muskegon Angels and attract additional investors or even start a second investment group as early as two years from now.
Hines views the angel group as providing local, high net worth individuals with an alternative investment option.
“We think this can become an investment vehicle for the community,” Hines said. “Look at the community. Where are people putting their money today? Look at the returns on bonds and cash. It’s negative, basically. So if this thing is operated successfully, it’s not only going to help business startups and create jobs and that sort of thing, but it can become an investment opportunity for people in the community that are looking for places to plant their money and they can get a return.”
Statewide in 2011, the most recent year for which data is available, angel investors put $9.5 million into 50 deals in Michigan, according to an annual report from the Michigan Venture Capital Association. The data shows 2011 was one of the best years ever for angel investing in Michigan and easily surpassed the activity of the previous four years.
Locally, members of the Holland-based Grand Angels during 2012 made 13 investments in nine companies for nearly $2.5 million. Ten were follow-on investments into existing portfolio companies and three went to new deals. The 2012 activity compares with eight investments for $1.9 million in 2011 for Grand Angels.