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ARTICLES
Los Angeles Business Journal January 10, 2000
Pitching to Angels: An Inside Look at Entrepreneurs' Quest for Funding by John Brinsley It would be hard to know from looking at them that Maoshing Ni and Rand McClain are about to make one of the most important business pitches of their lives. The entrepreneurs exude nothing but confidence as they prepare to speak before 30 angel investors, in a bid to convince them to invest in their start-up Internet venture. "Oh I've done this before," Ni said. "I know what the potential is," He is chairman and McClain is president of HealingPeople.com, a Santa Monica company seeking to become the leading Web site for Oriental and alternative medicine. It, and eight other Southern California start-ups, are about to either get a significant boost or be forced to find other avenues for funding. The assembled investors are members of the Tech Coast Angels, a local network of professional and amateur investors. Tech Coast is one of several groups that have formed in Southern California in the last year or two that invest in nascent companies in exchange for an equity stake. Given the large number of Internet-related start-ups that have gone public with huge marker valuations or been acquired for astronomical sums, the potential for angels and principals alike is obvious. The group, with branches in Orange County and L.A., has been swamped with business proposal, more than 50 in December alone. It is trying to streamline the process by which a company gets invited to make a presentation. "Sending me a 20-page business plan out of the blue isn't going to get read because there are just too many coming in," says leading Tech Coast member John Morris. At today's session, one or two representatives from each startup get in front of the angel group to make a 15-minute pitch, followed by a five minute question-and-answer session. All the companies have generated sufficient interest through business proposals vetted by certain members of Tech Coast to warrant an invitation. Some have already secured funding from other angels, and elsewhere. Those that pass muster will be subject to further due diligence. If a preliminary agreement is reached, the company will make another presentation at the monthly Tech Coast dinner meeting. By that time the company should know if it is going to get funding. "Some (angels) will have already invested before (the dinner), some after," says Ken Deemer, a founding member of Tech Coast Angels. "It's sort of squishy process." The goal of today's presentations is to get to that next level. Each entrepreneur is convinced that his business is a guaranteed success just waiting to happen, and they're all armed with impressive arsenals of statistics and projections to back it up. Many talk about revenues of $200 million or more within the next several years. HealingPeople goes first. Ni, a doctor of Chinese medicine, starts by describing how his treatment cured a man diagnosed with prostrate cancer and how the growing demand for alternative medicine can be harnessed over the Web. He has a smooth delivery and puts and authentic stamp on a field that might otherwise be greeted with skepticism. "I have been practicing Chinese medicine for over 20 years," he says, pointing out that there have been doctors in his family for 38 generations. "I founded a university for Chinese medicine in Santa Monica. I started a publishing company. Between me, my father and my brother, we have authored over 50 books." McClain is a former certified accountant with Deloitte & Touche and ex-kickboxer studying for his doctorate in Chinese medicine. He delivers a rapid-fire presentation. "The U.S. alternative medicine market is $27 billion," McClain says, using computer graphics about how diversified the market is to bolster his case. "Three out of five Americans last year used alternative medicines of some kind." He outlines a business plan to market herbal pharmaceuticals to both consumers and doctors, noting that his company has an advisory group of 60 certified alternative medical practitioners who will provide articles and clinical advice for the site. He stresses that the company's existing site, acupuncture.com, already draws 160,000 visitors a month despite almost no marketing. The existing site will be subsumed into HealingPeople's site when it launches in February. "We have not spent one penny on advertising yet," he says. Nor, despite an initial round of funding that puts its valuation at $5.5 million, has his company made any money, a familiar refrain as presentations goes on. There are other similarities. Almost all have been created in the last 12 months. Eight of the nine are Internet-related companies (the other is a high-tech medical device startup). With one exception, the company representatives are all men. Most, like HealingPeople, are asking for around $1 million in funding, although some ask for no more than $100,000. The biggest solicitation is for $1.4 million. There is also a pattern among the Tech Coast Angels. Of the 30 or so member gathered to hear the presentations, all are men. Most are in the mid-40s to late-50s. Morris runs the event, timing each presentation and letting the companies know when to sum up. As one company finishes the Q&A session, another is setting up its computer. Although it isn't a guarantee of success, it helps to have a Tech Coast sponsor before the presentation, and here is where HealingPeople has an edge. Morris and fellow angel Peter Cowen already have advised the company. Jerry Ducot, a real estate developer who recently joined the Tech Coast group, has put in initial funding and is vice chairman of the company. But while helpful, having an angel in pocket doesn't guarantee success. "We've had some very big disappointments with some companies that angels bring, saying 'I want to show this company,'" Morris said. But HealingPeople has benefited from the help given by its angels, and after their presentation is over, its chiefs sound confident about the outcome. "Judging from the questions there was a lot of interest," Ni says. "They seemed to warm to us as it went on," McClain adds. When a sheet is passed around for members to express interest in getting further information about each company, there are more names on the HealingPeople list than on any other. Three other companies garner respectable interest as well, one is a maybe, and four are clearly not going to get funding. "Actually, having four with this much interest is really great," Cowen said. Approaching Cowen and Morris as things are wrapping up, Deemer suggests that HealingPeople be invited to the upcoming dinner in a week. After some discussion, it's agreed. Barring logistical complications, the Santa Monica company will be taking the next step toward securing $1 million in exchange for giving up perhaps 20 percent in equity. "As far as I'm concerned," Morris says, "they're our leading candidate." |
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