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Angel voices.

Shy business backers shed their cloistered silence long enough to enlighten the path to serious money.

When an angel sleeps, he dreams of the perfect deal.

It goes like this:Two engineers walk up to him at a party. They're nervous and excited, and from their pocket protectors comes the plan for the killer app, born in an afternoon on a brew pub napkin. The angel instantly sees the idea's brilliance. It will take - no, storm! - the market and go public in 24 months at $18 a share. The engineers have mortgaged their houses, borrowed "love money" from their relatives and pulled together a hot-shot management team. They have no competition. And here's the best part: Absolutely no one, not a single investor, knows about it. He's first in line. He's in heaven.

Oregon's cash-starved start-ups would like to think they can give the state's growing angel community this dream on any given weeknight.

Angel money is, after all, cheaper than venture capital. Angels are willing to take on half-baked ideas and a B+ management team. They can provide smaller, more digestible sums of cash, unlike VC firms that are anxious to invest $5 million chunks at a time, with a much greater demand for exhaustive due diligence. But the circumstances that lead to a connection between angels and entrepreneurs are more complicated than a little cocktail party chemistry. For emerging growth companies, to launch with an angel in their pockets takes an understanding of the quirky, secretive angel persona, and of the two distinctive angel cultures scattering cash and advice at Oregon's entrepreneurs.

C. Simon Turkalj is a man of a certain age, certain means, connections and enterprises, none of which he will tell you about. As a business development manager for Intel, he helps invest one of the nation's largest venture funds, already plugged into more than 100 companies, with a fund value exceeding $500 million, all targeted at firms that can increase the penetration of the computer chip into our daily lives.

But that's just his day job. By night, he's an angel, though to keep the hordes from his door, he's guarded about his investments in "a number" of companies, ranging between $25,000 and $100,000. And he won't reveal his age because it's tender enough to "cause people heart palpitations."

By the time Turkalj was 10, he had convinced so many people that he'd have his own company someday that his nickname was "Mr. President."With an engineering degree from Stanford and an MBA from Duke, he learned about entrepreneuring at Ford Motor Co., and then joined an East Coast venture capital firm called TDA, first as an associate and then as an investment officer. There the angel bug bit.

"I started an internship for a friend in one of our portfolio companies. They gave him 17,000 shares. Now the shares are worth a couple hundred thousand. Not bad for a summer internship. That got my attention."

In 1995, he moved to Oregon to start a small metals manufacturing company in Wilsonville. By then, he was already investing in other start-ups. When he sold his company, Intel called. The luxurious Intel venture fund beckoned. He could have fun with his money and Intel's, too.

Turkalj is not unlike many other newly minted angels making their first investments in Oregon. They've rocketed out of start-up IPOs with millions, made it rich quick in the stock market or on the strength of employee stock options at Microsoft or Nike. They are sometimes fresh from their first management positions, anxious to mix it up with start-ups and get very involved in their management. They think due diligence is a mantra that ensures success. They are just beginning to build a network, a Rolodex and a reputation. Think of them as cherubim, that second order of angels often represented by innocent, winged children.

Hugh Mackworth is such a cherub. He considers his investment options from his company, Adelphi Consulting, named for the Oracle at Delphi, an ear that knew all, spoke in cryptic terms and was only thought to be right in retrospect. Being an entrepreneur, he added the "A" to be at the front of the alphabet. Starting as an undergraduate in the Silicon Valley, he passed through the Xerox research center, Apple, 3Com and Gamma-Link, absorbing cash and insight along the way. By early 1995, he was consulting for Digimarc. By late '95, he was president. A disagreement with the board caused him to move on two years later, more cash in pocket. He's invested in four companies including biotech start-up Naiad, but considers himself still an entrepreneur at heart, looking for the next company to run, a place where he can invest his time and get a "return on knowledge" not just money.

"A new company is all about turning an idea into a company, creating something from nothing."

Mackworth and Turkalj represent a pretty much nameless flock of cherubs at this point. Many of the younger investors will give even less information about their investments than these two. With few resources to handle the onslaught of startups, they are protecting their fledgling reputations and their leads.

If you want to have a lengthy chat with an angel, pick one with less to lose and a longer track record. Pick Jerry Pratt or John Calhoun. Milt Smith or Dan Kinney. Norm Winningstad. Or pick the leader of the seraphim (that highest order of celestial beings), the archangel, Tom Holce.

"I love business. I love entrepreneurs. So that's why I do this. I love to help people. If you can add a little value somehow, it makes life . . . it's what it's about."

Well, let's not forget the money. They say Tom Holce gained control of foundering BLT Technologies for less than $3 million. He sold it two and a half years later for $84 million. Not bad. As president of Holce Investments in Vancouver, Wash., he approaches 70 years old still investing in start-ups, still sitting on boards, still the name at the top of just about everyone's angel list. If Holce is in a deal, it has the golden seal.

Holce and other seraphim have a risk tolerance that outshines the cherubim's. They also tend to invest more frequently in relationships, in trusted managers they know from other ventures. While they are better-known than the cherubs, they still run silent and deep. The companies they invest in don't have names, they have categories: It was an "Internet play" a "health care software play." They speak in the plural,"We got into it in '95." "Who's we?" you ask. "Well, I can't say." How much did you invest? "Can't tell you that."

Quiet, but saintly. They expect to roll up their sleeves and guide the enterprise, much the way Holce got advice in 1958 when he started his first business, Mikros, making scientific instruments.

"Will Lake St. used to take me to the Arlington Club and lecture me for several hours each week on sales and marketing." Holce sold the company in 1964 and went on to start ADC Kentrox.

Holce and other seraphim downplay extensive due diligence. It's a gut call, Holce says.

"I don't put too much stock in a Harvard MBA.What are their dreams? I like to get to know these people a bit. I know I'm going to have to spend X number of years with them." And when it comes to money, he takes a more generous view.

"The new investors don't realize that the first dollar is not the last dollar. Your first dollar is only for openers. I've never seen one of these companies yet that doesn't need a lot of money going forward."

Where Holce goes, you can expect a flock of usual suspects to follow.

"I shoulder up close to guys who know what they're doing. If they're willing to part with their money, I'll part with mine," says Jerry Pratt, one of a gang of seraphim found in many Holce deals.

Pratt started out 10 years ago putting a lot of money into Optical Data. It tubed. Then Norm Winningstad came around talking about Lattice Semiconductor. Pratt bought out founder Rahul Sud's interest. That worked out pretty well. One day, after a rocky disagreement over another potential investment, Winningstad called and asked Pratt to meet him at the Hall Street Bar & Grill with the intriguing message, "Be there or be square." He walked in and was introduced to a Willie Nelson look-alike in a cowboy hat.

"He had a thing in a box that looked like a phallic symbol." The guy was Bob Carter, and the box held a video game control that launched ThrustMaster. Pratt had put in $140,000 by the time the company went public at $40 million.

"You've got to be ready to swallow hard," says Pratt, who counts the number of winners and losers as about equal. "But when you count the winnings..."

He's learned this much in his decade as an angel: "If you go into it thinking that you want to help other people make money, you inevitably make good deals. If you focus on the money, you'll lose it."

Angel Dan Kinney follows Holce's lead, too. "I don't spend a lot of time in analysis paralysis," he says. "My own lack of fear scares even me."

John Calhoun, another of the seraphim, looks to other trusted investors and managers. "If somebody came to me with an idea off the street, I probably wouldn't invest."

What they all want, cherubim and seraphim alike, are a cracker-jack management team and a stellar technology or service.

"I want a product that has a whole new spin on its place in the market. I find 'me-too' products don't make it," Kinney says.

"I fall in love with the management team first," Turkalj says.

So powerful is the lure of good management, still scarce as big trees in a clearcut here in Oregon, that angels will follow good managers around.

"One of the best investments we've got going for us now is PlusFactor and Pete Grillo," reveals Pratt. "We met Pete when we wanted to finance ProTools. They got an offer from Olympic Venture that doubled the cap rate we wanted to pay for it. We walked away and they made $30 million."

So when Grillo called Pratt in 1997 and said, "Hey Jerry, remember me?" it was only a matter of time before Pratt was in on Grillo's new venture. In fact, he was the first investor. One of the icebreakers into an angel's heart, says Grillo, is the fact that you've done it before.

Sometimes angels will even invest in companies with products they aren't sold on because they believe in the management.

Tom Holce likes Dave Sanders, CEO of, so much so that he's both an investor and board member. Sanders, says Holce, works hard and wants to succeed. But of's product, Inter- and intranet services to medical practices (more than 7,000 doctors or clinics are already customers), Holce isn't so sure.

"It's not a market I like. It's a personal bias. I like the people." Holce says the board is questioning "all sorts of things" but he believes in Sanders enough to think the company will ultimately succeed.

If management and product send angels to ecstasy, what drives them away? Turkalj ticks off four danger signs.

* A company that raises cash in dribs and drabs, hoarding equity along the way. "You can have so many investors you're practically like a public company. Ultimately, you have to give up some equity and bring in some quality angels or VCs."

* A good idea that alone isn't enough to sustain a company all the way to an IPO. Sometimes, says Turkalj, the best thing is to sell - now - before the deep-pocket competition makes you obsolete. Companies blind to this option won't court smart angels.

* Wild valuations that send angels into hiding. "It's one thing to put a 40% to 50% premium on your company. A 1,000% variance is ridiculous. "Turkalj says a lot of first-time entrepreneurs in Oregon, where there are few comparators, seem to think they're worth $10 million when they're obviously not.

* Finally, it's stupid money that turns him away, money from inexperienced investors likely to buy in at ridiculous valuations. "When I see that, I walk and wait for the cram-down round."

John Calhoun is president of CMC Research, a piece of Creative Multimedia that Calhoun carved out when he sold the company at over $30 million. As an angel, he's invested in Chemwest Systems, Ora Innovations, Distribution Sciences and Decision Point Data. He has his own hip-pocket list of danger signs.

"Do I understand it? There are a lot of great businesses that I don't get. It's not to say it isn't a great idea, but I have to relate to it. It has to move me."

Then there's the board. Is it independent and strong? "As an investor, I want to know who's watching my money. The entrepreneur is looking for ways to spend it. The board better be watching."

If a start-up can overcome all these objections and deliver that fine management team and superior product, angel money is out there. Finding it may be tedious, but it's hard to find anyone who doesn't love it once they get it. That may simply be discretion (why bite the hand?) but there seems to be a genuine affection between entrepreneurs and the angels who feed them.

Take Bob DeKoning, president of Decision Point Data. The software company, says DeKoning, has changed direction so radically that it fashions itself as a 10-year-old start-up. New directions require new cash, so DeKoning's predecessor, Corey Smith, attracted Tom Holce and Bob Gregg, the CFO at Sequent. The usual suspects followed Holce into the deal. Last spring, an initial angel round raised $1.7 million from 19 investors. But as Holce predicted, the money didn't go quite as far as the entrepreneur hoped.

"Last year was a little disappointing," DeKoning says. "Revenues weren't quite there as we launched new products nationwide. We need to get the momentum going. Our sales cycle proved to be longer than expected."

But when DeKoning went back to the investors in December with the news, 16 came back with another $1.2 million. He expects a 300% bump in '98, taking the company to $6 million in sales.

"I think I am luckier than most," DeKoning says. "Tom? He's very involved. I probably talk to him once a week or so. He's been a tremendous mentor to me."

Now, instead of the usual trajectory - angel money, venture capital and finally an IPO or acquisition - DeKoning doesn't see the need for a VC round.

"We haven't paid the price you might pay with VC money: giving up board seats, giving up control. And when you have someone like Tom Holce, he was in our presentations and advised and coached us how to raise angel money as quickly as possible."

It's DeKoning's experience that causes him to lend his support to a new effort by the Oregon Entrepreneurs Forum to create a statewide angel network in which accredited investors and start-ups can link up.

Angel networks aren't new, just scarce, or off the books. There's the much-touted Band of Angels in the Silicon Valley, and a few others around the country. Oregon's own Portland Venture Group vets business plans, too. But it isn't the pay-to-play environment pictured by OEF and Simon Turkalj. As an OEF director, Turkalj is heading up angel meetings to discuss just how such a group might be fashioned. The objective, he says, is to offer assistance mostly to cherubim, those new angels who need help meeting good companies, doing due diligence and,just as important, meeting other angels.

"Angels tend to run in packs," says Turkalj, "and the packs are ignorant of each other."

Warren Rosenfeld, president of Calbag Metals, runs in just such a pack.

"We're sort of the Mel Brooks investment group," cracks Rosenfeld of the angels he's been investing with for about eight years. "We don't resemble 'organized' at all." Rosenfeld and friends see about three to four companies a month. They are unaware, he says, of who else out there may be seeing the very same companies.

Turkalj believes that making investing easier would do good things for Oregon, creating a more sophisticated pool of investors, managers and start-ups.

"The presence of angels is a healthy barometer of future growth."

Not everyone likes the idea of connecting all the angel dots.

"Angel networks are useful in making contacts. Full stop. But if they give a sense of false confidence that the deals are fully vetted, that's dangerous," says Arthur Lipper, author of "The Guide for Venture Investing Angels." Lipper also worries that angel groups might become peppered with bad investors who would drag the whole group down. "Just because somebody cashed out doesn't mean they know how to invest. They may have a knowledge of technology, but they might not know how to cut a deal."

Local angels are adopting a wait-and-see attitude about the OEF proposal. Hugh Mackworth shares Lipper's concern about partnering with inexperienced investors, but he figures OEF can resolve that. Dan Kinney doesn't like it enough to put in $15,000, a figure that is currently being bandied around as a membership fee.

"I don't want to be with bankers, lawyers, accountants and people looking for jobs."

Turkalj is convinced his proposed network will not become bogged down.

"You've got too many amateurs running around in other syndicates. I see it organizing the angel community and taking some of the mystery out of it. We have to be very careful about the quality of the members."

If he can structure it right, angels like John Calhoun are likely to join.

"I think it would be very welcome. Maybe I'd be investing in more companies."

Ahh, heavenly music to the entrepreneur's ears.


Stupid money: Inherited wealth or cash from rich doctors and dentists who only know enough about business to be dangerous. Also called "sucker money."

Voyeur angel: Not a serious investor. Tire kicker. Takes two years to say no.

Vintage year: The year an angel or venture capital fund is closed. Used for benchmarking the fund's IRR (internal rate of return).

Pay to play: The amount required up front to participate in an angel investment group.

Side bet: When an angel "pays to play," then makes an additional investment on the side beyond the amount committed by the angel group.

Cram-down round: A second or third round of financing in a start-up that depresses the overly inflated value of the shares sold in the first round. As in, "They've got an ego problem. I'll invest, but I'm waiting for the cram-down round." It's a market correction.

Hurdle rate: Expected annual rate of return that a start-up must deliver to investors.

Gatekeepers: Usually lawyers or accountants trusted by angels to act as hoard protectors. They'll introduce you to angels - or not. Most off-mentioned gatekeepers: Les Fahey at KPMG Peat Marwick and Art Hemstra of Silicon Valley Bank.

Deal flow: Getting any deals sent your way? If so, you've got deal flow.

Accredited Investor: Has a combined family income of more than $200,000 for two years running, or a net worth of at least $1 million.


Angels might not require the same heavy-duty due diligence as VCs, but just in case be ready with the following:


Have audited financial statements, all agreements on loans and stocks, a cash-flow analysis, lists of suppliers and customers, and accounts payable and receivable. Most important, have an original forecast or plan for the next three years by quarter.

General corporate

Minutes of all board and shareholder meetings, information on risk management, an organizational chart, a list of attorneys and any acquisitions or divestitures.

Capital stock

A list of your stockholders and all of their agreements with you.


Copies of federal and state tax returns, and property and sales tax returns.

General contract

Copies of all license agreements, government contracts and other important contracts. Your agreements with other companies, including joint ventures and marketing agreements.

Product specific

List of products you have developed or are developing or that you distribute, including any royalty or licensing agreements for each, and the names of the employees working on each one.


Copies of all copyright registration and information on how you go about obtaining copyright protection.


A list of all owned or pending patents.

Trade secrets

How do you protect your secret sauce? What non-disclosure agreements do you use?


List all trademarks and any domain names, and any legal issues involving them.


Involved in any lawsuits? List them.


Summary of key managers, their backgrounds and recent business experience. Any employment contracts, summary of officers' compensation, copies of benefit plans and a head count of all employees.

General business

List of 10 customers, five of whom have not been satisfied (guard this carefully!), and a list of personal references for the CEO and president. Quantify your market, your customers, competitors, partners and suppliers.

Condensed from a l-o-o-o-n-g due diligence checklist created by C. Simon Turkalj.


Organized angel groups and funds across the nation.

Portland Venture Group Glenn Smith, (503) 697-5907

Puget Venture Group Gary Rittner, (206) 271-3704

Private Investor Network (301) 718-4272

Texas Capital Network, Austin (512) 794-9398,

Kentucky Investment Capital Network, (502) 564-7140

Texas Capital Access Forum

The Angel Capital Network (ACE-Net)

Environmental Capital Network Michigan,

Western Investor Network Steve Lloyd (206) 441-3123

Capital Resource Network Kansas (913) 888-6807


No one really knows how many angels there are or how much they invest. If $10 billion was raised last year in venture capital nationwide, angels, in their own quiet way probably did much more.

How rare a breed are angels anyway? C. Simon Turkalj says he believes there are 30,000 millionaires in the Portland metro area alone, each one, by definition accredited investors, a potential angel.

But how many of the 30,000 should risk any of it on start-ups? Says angel John Calhoun: All of them.

A well-balanced investment portfolio should include stocks, bonds, real estate and even something as high-risk as venture capital.

"At some point the stock market's going to crash," says Calhoun. "The case for angel investing is that you are able to invest for a steep, steep discount compared to the stock market, You should keep it to a small percentage of liquid assets. it's always got to be stuff you can lose."
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Title Annotation:includes related articles; Oregon entrepreneurs
Publication:Oregon Business
Date:Apr 1, 1998
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