by JAN NORMAN
ocregister.com writer
PREPARING A NEW VENTURE: Luis Villalobos has long been involved in "angel" investing. In addition to starting two successful companies, he's invested in 57 ventures. He also is a founder of Tech Coast Angels.
From the "Working Group on Venture Capital Final Report, October 2005," U.S. Dept. of Commerce "Entrepreneurship and innovation are the two keys to success in economic development providing for wealth creation and a rising standard of living. Furthermore, the commercialization of innovation and the growth of entrepreneurial firms require that risk capital is available, in particular at the early stages of firm growth."
"If the activities of business angels, who are active in seed and early stages, could be better integrated into the mainstream of venture capital, for example through co-investment schemes this could help to overcome the market failure of early-stage funding."
For more information about the Angel-Led Venture Partners LP, contact Luis Villalobos at Luis@angel-led.com .
If you want to know about equity investing in Orange County, Luis Villalobos is your go-to guy. He's had a hand in most efforts since the 1990s to increase funding to local entrepreneurs, especially during the early stages of their ventures. So it's not surprising that Villalobos is now seeking to form a $50 million early-stage investment fund with a couple of other successful entrepreneurs. After tapping the resources of family and friends, startup firms turn to sophisticated investors, called angels, who put money and expertise in promising, young enterprises. Angels are essential to strong local economies. These business leaders are seeding the next generation of high-wage job generators. Rather than compete with these angels, of whom Villalobos is one, the Angel-Led Venture Partners LP would work with them to increase the money available to young companies.
He started working on the concept in 2000 because of the insatiable need for venture money that he saw at Tech Coast Angels, the nation's largest angel club, whose 250 members have made 107 deals since 1997.
"It didn't matter how big we got, we always needed more capital," Villalobos says. The fund proposes to sell limited partnerships for $1 million to $2 million, more than an average angel brings to the table. Then the fund will rely on the hundreds of hours of due diligence of potential investments done by angel clubs and co-invest with the angels so that more deals can be made.
"Luis is proactive in embracing angels," says John Morris, managing director of GKM Ventures in Los Angeles, and chairman of Tech Coast Angels. Such a co-investing fund "will make our deals larger and safer."
Villalobos has long been involved in angel investment. In addition to starting two successful companies, he's invested in 57 ventures, overall doubling his money. He also is a founder of Tech Coast Angels.
His involvement in the formation of the Angel Capital Association, which seeks to be the angel equivalent to the National Venture Capital Association, will give him access to more than 100 angel clubs nationwide.
Not every Villalobos effort to build capital resources for young companies has flourished. He had a hand in ACE-net, a defunct federal effort to coordinate venture investing. And Gazelle Labs, the for-profit business incubator he co-founded in 2000, lasted less than a year.
Maybe it's his math degree from MIT that causes Villalobos to keep detailed statistics about equity investments. His annual updates for the Harvard Business School Association of Orange County draw standing-room-only crowds.
Ask him how much venture capital Orange County companies have received, and he'll e-mail a chart going back to 1990 broken down by seed, startup and later-stage investments with comparisons to Los Angeles and San Diego counties.
All that data mining helps him prove that angel investors fill a gap in the professional investment world.
In the 1960s, venture capitalists were wealthy businessmen who liked to put their money and skill into young, growing companies. As the venture capital industry grew into greater professionalism, investors avoided riskier deals. They also moved toward larger deals. During the dot-com craze, a typical venture capital deal was $15 million; more recently it's $2 million to $3 million, mostly to firms far enough along to have products and revenues.
Today's angels are like the early venture capitalists, putting in small amounts of money early in a firm's life.
Tech Coast Angels, for example, each promise to invest $50,000 a year, and several pool their money for a single deal, Chairman Morris says. While TCA has some venture capital members and has done cooperative investments with some regional funds, many VCs don't like such small deals.
Angel-Led Venture Partners would do only such deals. But it is far from a done deal itself. Villalobos and his co-managers will have to persuade big-money guys that the untested model can make money. And although the managers have individual investment success, they haven't worked together yet.
While the fund depends on angels to investigate the viability of potential investments, it has no signed agreements with any angel clubs.
Villalobos is confident even small angel groups can adopt TCA's proven due diligence process. Still, he anticipates that most of Angel-Led Venture Partners' co-investing will be with the largest clubs on both coasts.
He hopes to raise at least $20 million within three months so that the fund can start co-investing.
"Once we make our first closing, we're committed," he says, "but the (return on investment) doesn't work out well for partners at $20 million. The numbers are better at $50 million."