Capital improvement: Gary W. Clark leads new chapter of Tech Coast Angels as the process for investing by such groups gets more strict, requiring more than just ideas from companies.

When Gary W. Clark, the president of the newly created Westlake Village/Santa Barbara chapter of Tech Coast Angels, talks about the process his group follows to determine which investments to green light, he sounds more like a venture capitalist than an angel financier.

Time was angels could be counted on to nurture an idea or a technology that promised, someday, to bear fruit.

But times have changed for angels as they have for other funders, and these days the companies that receive funding from Tech Coast Angels hold more than promise.

Although the group continues to fill a niche for small investments that average only about $500,000 in each company, the demands on those companies have grown far more stringent.

In many cases, the 80 companies that Tech Coast Angels has financed to the tune of about $51 million since its inception in 1997 already have customers. At the very least, they have a product, an application or a service that addresses a specific, readily identifiable market.

Until last year, all the 230 members of Tech Coast Angels made their own investment choices, selecting the companies they wished to fund from the candidates that successfully completed a lengthy vetting process that engages all the members.

But last year Tech Coast Angels added its first investment fund, a $3 million war chest that members who don't want to make their own investment decisions can opt into.

Question: What area will the Westlake Village/Santa Barbara chapter focus on?

Answer: The geographic area is pretty much Calabasas to Santa Barbara. It's unscientific and not based on a Rand McNally map. I was in the Los Angeles chapter and my drive to go to the meetings was running an hour and a half. And when they had a combined meeting with the Irvine chapter that would meet in Long Beach, it would be a two hour drive one way. When it got to be a two hour drive, which was a four hour round trip, I said this is too much. So that's when the L.A. group said, okay would you be willing to go an hour north of where you are? So why don't we make a loose circle from Westlake an hour's drive which went from Calabasas to Santa Barbara.

Q: Were you worried that this area wouldn't have a sufficient number of prospective companies to make it worthwhile?

A: If we were only looking at companies from Calabasas to Santa Barbara that would be a legitimate concern. We want to give an opportunity to the companies that are here to be viewed and examine potential funding by people just in this area, but we look at deals from San Diego to Santa Barbara. The company starts its Tech Coast Angels interaction with the chapter that's in its geography. And if we felt they were invest-able then they get promoted internally for all the other chapters to look at as well.

Q: How does the process work?

A: The company gets referred to Tech Coast by an accountant, a banker, an attorney. They submit some information on the Web site that describes the company. A screener looks at that, accepts or rejects them as a potential company of interest. If they're a company of interest, there's a phone screen with one or two people that have knowledge of that industry space. If that looks like a match they get scheduled to a deal screening meeting. They have about 30 minutes to present their opportunity. After those four or five companies present, the members that are at that screening discuss them, and we select the companies that we think we want to go to the next step, which is to visit with the company, talk to the customers, look at the technology and report back all of the chapters what we found. And if that looks promising then we begin negotiating with them--what type of participation we would have financially and from an organization standpoint, would it be contingent on milestones, how would the money be dispersed, what would it be used for? We get that negotiated down to a set of terms and conditions and a valuation of what we think they're worth. If those things look like they're in alignment, we negotiate a deal. That deal is made to all the members of Tech Coast.

Q: How many companies make it through that process?

A: From the entry of their information on the Web site we probably look at 50 companies a month. About 2 percent of the companies get invited to the dinner meetings.

Q: How has the criteria changed for these investments? My impression is that not long ago, an angel wouldn't require a company to have customers?

A: Tech Coast operates more like a venture capital firm and sees deals that are farther along in their development. We really would like to see, if not revenue, then line of sight to revenue. Today we look at deals that are more mature than angels and early stage investors including venture capital would have looked at over the last several years.

Q: Is that because Tech Coast is a different type of investment group or because it has changed along with the rest of the industry?

A: I think it's probably both. The only way venture capital works from a financer's perspective is if enough companies get monetized, they go IPO, they get bought, they merge, they build a business that's throwing off sufficient capital to pay back investors and generate dividends or returns in some way and they have to pay for all the ones that can't or didn't or will never.

Q: Do you think that the train wreck of 2000 when the tech bubble burst and so many lost so much money can be repeated?

A: I think enough people got burned badly enough through the suspension of sound business thoughts and processes that that won't happen again in the near future.

Q: How has the recession that the tech industry is just now getting over affected startups and early stage companies?

A: Certainly without the marketplace of have-to-have new you now need to solve a specific business problem and have potential customers and have revenue. That's a higher bar. It's kind of the bar that was there before that got thrown away that's back.

Q: What is your background?

A: I'm a serial entrepreneur. I started four businesses, all of them in the technology space, computer software. Two of them were successful to the point where I was able to sell those businesses to Nasdaq-traded companies. One I shut down and moved the assets into a different company to refocus its direction, and one of them crashed and burned. Those businesses were focused primarily in data analytics for health care, life sciences and financial based companies.

Q: How did you get involved in Tech Coast Angels?

A: Having worked in the health care industry at the delivery of health care end of the spectrum, working with physicians and health care practices and HMOs, I decided that was the wrong end of the business to be in for creating value, that innovation and opportunity and value creation in the health care field would need to come from higher up in the food chain--research, biotechnology, drug development, things that would have a disruptive impact on the ability to deliver health care both clinically and financially. So I attended a lot of lectures at local universities and joined a biotech networking group and became the director of Venture Coast Biotechnology Institute and used that opportunity to build a network of scientists and entrepreneurs and business leaders that were interested in exploring new technologies that could be brought to the marketplace.

I started a capital accelerator group for biotech life science innovations called Liwet Ventures and the thought there was that it would be an interesting idea to work with the very earliest stage innovations still on university campuses and try to help them decide whether their technologies could become commercial opportunities and to connect them with capital, people and strategic partners. What I found was there were lots and lots of opportunities, but the amount of capital necessary and the level of risk was too big for most people to digest.

And so I shut that one down after two years.

In the course of looking for strategic partners I joined Tech Coast as an individual investor. And some of the opportunities I worked with have now made it to the point where they can be presented at Tech Coast. And I'm still working on some of them.

Snapshot 

Gary W. Clark

Title: President, Westlake Village/Santa Barbara Chapter, Tech Coast Angels

Education: Bachelor's degree in business administration from the University of North Carolina. Chapel Hill

Personal: Married, two children

Most Admired Person: Grandfather. Richard McCurdy.