The Fresno Area Hispanic Foundation announced earlier this month it is forming its own angel investment group to fund early-stage businesses with growth potential. It would be one of the few such organizations in the region. Photo by Christophe Van der waals on unsplash.com

Though all investing comes with risk, the path of angel investors is even more fraught.

Angels are private investors who focus on financing small startups in exchange for equity.

The “angel” part has origins in Broadway, where plays were regularly financed by wealthy individuals rather than formal lenders and payments were due when and if the production was successful.

The term “angel investment” was first coined in 1978 by founder of Centre for Venture Research William Wetzel after completing a study on how entrepreneurs raised capital for businesses, describing investors with seed capital.

According to a 2022 Report from the Angel Capital Association, on average, angel groups invested a total of $5.3 million per group in 2021, an increase of 15% from 2020.

Locally, one organization is gearing up to connect business owners with potential investors.

Dora Westerlund, CEO of the Fresno Area Hispanic Foundation (FAHF), announced earlier this month that it is forming its own angel investment group.

Business owners will have the chance to pitch their business to investors, with one business owner being selected for an up to $100,000 in investment.

FAHF Chief Operating Officer and Community Development Financial Institution Executive Director Yery Olivares is leading the formation of the angel investment group.

FAHF’s plan has been in the works for about a year after receiving a three-year, $400,000 grant from the Economic Development Administration. The FAFH matched that amount.

“We propose to help build a new network of angel investors here in the Valley, with an emphasis in new minority investors. We are looking to find women and individuals in diverse backgrounds to show them how to be an angel investor,” Olivares said.

There is also going to be a focus in bringing investment opportunities to the small businesses the FAHF works with.

The application deadline for business owners is at the end of July, and the investors will have a kickoff meeting in early August.

Olivares said they want to focus on small businesses owners that have the potential to scale, while having innovative components in their business. The businesses must also be in the Central Valley.

FAFH is currently recruiting investors as well.

Applicants of the business pitch competition will go through a bootcamp to perfect their pitch, and how to create a strong deck for their PowerPoint presentations.

Investors will also receive training and education about investing, how to have a good deal flow, how to look at deals and help them build a network, especially for first-time investors.

The goal is to raise at least $100,000, which would need to come from about 10 to 20 investors.

One “unit” of the investment trust is $5,500, with each investor being able to buy up to five units.

Olivares said that the FAHF wants to focus on women investors, members of the Latino community and first-time investors because there is a market of qualified investors who have no idea how to get started.

The goal is to get more individuals from these groups to become accredited investors. There are currently eight individuals committed to invest.

After the investors have their kickoff, they will start looking at the pitches and narrow it down to the top 20 applicant who will have the chance for a 1-minute pitch, with those being narrowed down to the top 10.

The remaining top 10 will give a 3-minute pitch, with the investors then narrowing it to the top three.

The top three will then do a live competition in the fall at the FAFH annual gala, where one winner will be selected.

FAFH is working with investing consultants to facilitate the angel group, with many eager for something like this to hit the Fresno area.

“There’s a lot of interest from people to bring this to Fresno,” Olivares said. “At the end of the day it’s to bring the opportunities to small businesses that they normally don’t have access to.”

Mysty Rusk, executive director of the Free Enterprise Institute at the Knauss Center for Business Education in San Diego, is one of the consultants for FAHF’s investment group.

The U.S. Securities and Exchange Commission defines an accredited investor as an individual who has a net worth of $1 million or more, not including their primary residence, or a personal income of $200,000 a year for an individual or $300,000 for a family.

Two new criteria were added in 2019. One allows professionals with financial securities series 7, 65 or 82 licenses, and the other is allowing “knowledgeable employees,” which are people that have worked at a fund for at least a year and have a good handle on the risk of angel investing.

Rusk said angel investment tends to be riskier than other types of funding. Angel investors get involved at a time where costs are high and the customer base is unknown.

“There’s no guarantees, lots of things can go wrong, and angel investors tend to invest really early,” Rusk said.

Angel investors bring a lot more than money, Rusk said, also providing resources, knowledge base, network and regulatory understanding.

Initial investment, known as seed funding, starts with various rounds — Series A, B, and C.

Series A funding is the first stage of funding where a company shows its progress on its business model and demonstrates growth and revenue potential.

By the Series B round of funding, a company already has reliable cash flows and a viable product.

In Series C funding, investors bring more capital to a successful business in efforts to receive more than double that amount back.

As an investor, Rusk said that anytime she is looking at a company, she looks for a technical solution that has a good product market fit, a market opportunity that’s big and growing, a team that can execute, a business model that makes financial sense. She wants to know what they are asking for, how they are going to use it and what the return will be. 

There are some local angel groups, Rusk said, but the fact that she can only name a few off the top of her head shows there isn’t a large community.

“It’s perfect timing to bring a program like this because it will help connect so many things for investors and build their knowledge base and network in the process,” she said.

Rusk said potential investors should contact the FAHF.