Miramichi angel network to invest at home

By Jennifer Campbell – Telegraph Journal | link to original article

As executive director of Enterprise Miramichi, Brian Donovan gets to see a number of files every year from businesses or would-be businesses looking for financing. Some of them look like really good investment opportunities for small-scale investors who want to use their extra dollars to put money back into the community. After seeing enough of such files, he decided to do something about it.

« I proposed to my board about a year ago that we look at creating an angel investment fund to find the equity that these businesses need, » Donovan said. « Most of the programs Enterprise Miramichi has are either debt-financing or grant programs and the grant programs only come into play once the equity and debt are properly aligned and the business plan makes sense. »

The board was very receptive and, after he quietly put out some calls to local entrepreneurs who might be interested in investing in other businesses, the Miramichi Angel Investment Network was born.

« We have a handful that have expressed interest, » Donovan said. « We have money in the bank, but we haven't invested in a firm yet. »

He noted that the region now has two potential pots of angel capital and, if the files are appropriate or big enough, he said they can also turn to the New Brunswick Innovation Foundation and the Atlantic Canadian organization known as the First Angel Networks.

Donovan said the Miramichi fund is the kind of thing that allows smaller investors to get in the game, something the region desperately needs. Maybe it's a retired business person who sold their business and has the proceeds in a holding company. Or maybe it's a retired civil servant who can live off pension proceeds but has a little extra in savings. Donovan has asked each investor to put $5,000 into a common pool. Beyond that, if they like a prospect enough, they can direct some personal money into it as well.

« In New Brunswick, the pooled fund couldn't benefit from the small investor tax credit, but the individuals could if they went out on their own with it, » Donovan said.

So why bother with adding to the pooled money? He says his network, which is run by the same board of directors as Enterprise Miramichi, offers a level of due diligence because his board is made up of a group of seasoned investors and savvy business people who know how to assess a company's prospects and therefore minimize risk. Some companies could also be considered by the fund former premier Frank McKenna created this summer to help fund the growth of technology companies in the Miramichi, where McKenna's former riding was.

Although he won't discuss his own investments, Donovan is an angel investor and a member of the group he created.

« I'm not going to ask others to put money in if I haven't, » he said. « I think that's only fair. I have an MBA and I'm working on a charter business evaluator designation. »

The fund will make investment decisions by vote. If a majority vote to make an investment, it will be made. « All the members will be at the table, » he said.

He hopes the fund will raise $300,000 to begin. Most companies they invest in will be small and at the startup phase and most, he said, will have a technology focus and high growth potential.

« But the angels may decide there's a good business for the community or it's culturally significant, » he said.

Those who have already signed up have said they just want to invest in – not run – the companies.

« They'd be available for guidance and maybe they'd take a seat or two on the board of directors, but they have no desire to be running them, » Donovan said. He envisions investing in companies that come to the table asking for $100,000 for phase one, then upping that to $250,000 if it's successful. Finally, to expand, they might need $1 million.

« We're small scale and regional, » he said. « We see it as helping ourselves. »

For his part, Rick Hancox sees the potential for more such networks.

« I could see a francophone angel network, a women's angel network, an IT angel network, an aboriginal angel network, » said Hancox, who is the executive director of the New Brunswick Securities Commission. « Wisconsin has 15 or 20 different networks. »

Five years ago, he said, there were stories about General Motors buying a plant in China in the business section; today there are stories about New Brunswick companies, secession planning, investment challenges.

« We are starting to see some of these fundamental changes, » Hancox said, adding that the securities commission's mandate is to be a catalyst for attracting investment.

When it comes to advising those who think they might want to dabble in such business prospects, Donovan says the first thing you have to do is assess your risk profile. Most angels say putting out five to 10 per cent of your net worth is a sensible approach. If you lose it, you're still OK financially.

« Every investor has their own profile for risk, » Donovan said.

« Whatever forum you're putting your money in, you have to understand the risk. If you risk 50 per cent of your life savings, and it doesn't do well, you're in trouble. »

Former NBTel president Gerry Pond, who has invested in many N.B. companies, said the best thing for would-be investors to do is to keep an eye on the newspaper and other media, for promising companies and then contact them. He said it might be a company that's had a technological innovation featured, or won a pitch contest such as the New Brunswick Innovation Foundation's BreakThru challenge.

« You keep your eyes and ears open, » Pond said. « You can discover these people because they're not usually quiet. They're out there, making themselves be known. »

Pond noted that the small business investment tax credit administered by the provincial finance department states that the minimum investment to qualify is $1,000.

« So it's technically possible to do and still get a tax credit. »

Fourth in a series of articles on the investment culture in New Brunswick.