An Interview with John Sechrest
Founder, Seattle Angel Conference
When people hear the words angel investors, they think of an affluent individual who drops down from heaven and gives money to a person with a great idea. Or they think of the TV show Shark Tank and imagine angels acting more like the devil looking like Kevin O’Leary and waiting to pounce and steal your company in exchange for money, equity, and a signature. Neither is entirely true. John Sechrest is neither an angel nor the devil but he knows how to bring out the best in them. John started as a software engineer at HP, writing network code for calculators and later became the founder of PEAK Internet services. He spent 5 years as the Economic Development Director of Corvallis Oregon, where he founded the Willamette Angel Conference. He participated in the Oregon Angel Fund, a venture capital fund that brings together an extraordinary group of business and technology leaders for the benefit of local entrepreneurs. He is working to bring that model of community investing to Washington State.
What does angel investing have to do with economic development?
The local economic process depends on creating value for customers who are outside
the local economy, bringing outside dollars into the local economy. With local investment into small companies that serve a wider market, those companies are able to find a foothold and expand, creating local jobs and opportunities. These companies are also more likely to stay in a community if they’ve had local investors believe in their business.
Using angel investing conferences as a focus for discussion provides a way to draw out more potential startup efforts in the community. With the Internet and FedEx, a whole host of businesses are able to operate in any location. The key question is how to anchor them into your community so they decide to remain in their as they grow. One way to do that is to have members of your local community be your main investors.
In order to have good companies to invest in, the angel group will need to engage in supporting the development of local ecosystem resources like co-working spaces, accelerators and workshops that provide a framework for early stage companies.
What is angel investing?
In 1934, Congress declared that everyone in the U.S. could only buy “Registered Stocks”, unless covered by an exemption. One exemption, Regulation D 506, provides for the private placement into unregistered stocks. For any small business trying to raise startup capital, the registered stock process is too much of a barrier, putting that path to capital out of reach for most rural businesses. There are several exemptions that are possible, but 92% of all angel investing is done via this one exemption of Reg D 506(b).
An angel investor is someone who is “Accredited” as defined by Reg D, and who uses their own money to invest in unregulated stocks. In any community, there is probably between 5% and 9% of community members who meet the income and net worth thresholds for this regulation.
Are there any examples of angel investing groups in rural communities?
With the use of the Angel Conference as a training mechanism, several rural cities in Oregon have been able to establish angel investing groups. Bend, Corvallis/Eugene, Medford and Ashland have been able to put angel groups in place. These conferences create a way to train new angel Investors in the local area. It is a small investment, aimed at teaching angel investing by doing a structured angel Investment, using an American Idol style process. This helps the companies get stronger and it helps the angel Investors gain perspective on the local market.
There are federally accredited community members in most communities who are not aware that they have this option and would not know where to start if they wanted to. Oregon has demonstrated there is capacity for smaller rural communities to sustain active angel investor groups. This provides a way to invest in the foundation of the next generation of companies in the community.
What does an angel investor look for when looking at companies?
When an angel investor is looking at a company, they are trying to balance the risk vs the returns. To that end, they most likely want to select high-growth companies to invest in. However, this may not be possible to sustain in the long run. So a new form of revenue redemption provides a way to invest in a much wider range of companies, including some that have a lower growth rate, yet strong margins. Small businesses may have margins, but do not have an ongoing increase in revenue and employees, where a growth company will be adding new people on a year over year basis.
Where can I learn more about angel investing?
The Angel Conference is a starting point for gathering people who are interested in the process. But here are some more resources.
- For a detailed description of the process, click here:
- To learn how to start and mange an angel group, click here
- To attend the upcoming Seattle Angel Conference, May 12, at a discounted registration, click here
- To learn or attend the Bend Venture Conference on October 13-14 in Bend, Oregon.
Another pathway is to look at the book “Angel Investing” By David Rose. It is the foundation that we use for the Seattle Angel Conference.