Monday, June 05, 2006

The Impact of Angel Investors

One of the things the Pittsburgh Region needs in order to accelerate entrepreneurship is more "angel investors." Angel investors are high-net worth individuals who make investments in the very earliest stages of a new company's formation and growth. Without enough angel investors, innovative new companies may die prematurely, or move to other regions where they can more easily find early-stage capital. Conversely, if there were more angel investors here, some entrepreneurs would likely move here from other regions and bring the economic benefits with them.

What kind of difference can angel investors make? Alcoa, for example, is here in Pittsburgh because 118 years ago, Pittsburgh had angel investors willing to invest in an entrepreneur with a new technology, and Ohio didn't. A story on Alcoa's history in the March 5 Pittsburgh Tribune-Review describes how Charles Martin Hall, who invented an inexpensive method of smelting aluminum, came to Pittsburgh from his home in Oberlin, Ohio because he was unable to find investors in his home state. Alfred E. Hunt and a small group of investors provided the $20,000 in seed capital that gave the Pittsburgh Reduction Company, later renamed Alcoa, its start. T. Mellon & Sons provided another $25,000 investment two years later. Note that Hall didn't take the capital back to Oberlin to start his company, he stayed where the capital was, in Pittsburgh.

Unfortunately, the early angels and entrepreneurs in Pittsburgh may have been a little too successful. Pittsburgh was transformed from an entrepreneurial region to a big company town, and that broke the cycle of risk-based finance. The community's wealth -- whether individual or institutional -- was no longer in the hands of people who had made their money through entrepreneurship or financing entrepreneurs, and so it became harder for entrepreneurs to find angel investors here than in regions where recently successful entrepreneurs were looking for new ventures in which to invest their money.

Both Innovation Works and Blue Tree Allied Angels are currently working on getting more angel investors and angel investment in the Pittsburgh Region. But they will only be successful if more people here are willing to become angels or to invest in an angel fund.

If you'd like to know more about angel investing and to meet some of the kinds of entrepreneurs who need angel investment to grow, the MIT Enterprise Forum is sponsoring a program on angel investing this Wednesday, June 7, at 6 p.m. at Seagate Technologies in the Strip District.


Anonymous Anonymous said...

I know this is old, but it's worth trying because I think this is an interesting article. I want to run my own business, but I'm a little shy of having enough capital. An angel investor would be great and very beneficial. I'd like to buy a business instead of starting one from scratch, but I haven't had any luck looking for the right one. Do you have any suggestions? Thanks.

4:03 PM  
Anonymous Anonymous said...

@Amy -- Before you look into angel investors (because it can be very complicated), I suggest looking into your local small business group. They might be able to direct you to regular lenders and such.

I also suggest checking out, which is this online global marketplace where you can invest in, buy, and sell a business. There is even a find a lender section, and that would be very useful. You'd be able to do two things at once. Check it out and good luck!

11:28 AM  
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11:29 AM  

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