Correction: This version corrects the name of Jim Roberts' western North Carolina investor group to Blue Ridge Angel Investor Network.

As the Wilmington area seeks to become a magnet for innovation and new business ideas, it has been cultivating an environment in which startups can take root. It’s not enough, however, just to provide business incubators, maker spaces and ways for entrepreneurs to connect. For seeds to sprout and grow, they need more than good soil. They need water and fertilizer.

That’s what angel investors can provide. With the increase in local startups has come a call for more early-stage investment to help viable ventures make the transition from friends-and-family backing to investments that can support new companies through their critical next phases.

Three angel investors took the stage at last month’s Cucalorus Connect conference to share their perspectives on what they want to see in a potential investment.

First of all, the product or service must solve a problem, rather than just being nice to have, said Joe Finley, co-founder of CastleBranch Corp. and an investor. The young company also should be flexible and able to change direction quickly.
Panelist Mike Rhoades, a director in AlixPartners’ Information Management Services practice and an investor in Wilmington Investor Network (WIN), said his investor group wants to see a proof of concept and/or a prototype and a business plan.

Michael Cain, a fellow WIN member, emphasized that an idea may be new and a venture may be young, but angels prefer that the people involved have been around the block a time or two. They need to know how to budget and marshal their money, and they need to know how to attract a good board, he said.

“We look for a good management team with experience,” Cain said. “Everybody can have a great idea, but they’ve got to be able to be a good jockey. Most entrepreneurs can come up with a good idea but don’t know how to sell it. Ninety-nine percent miss projections.”

In its 10-year history, WIN has invested in 35 companies, 30 of which are still working, according to Cain. The network has yet to fund a Wilmington venture, but it is eyeing some local possibilities, he said.

Investors aren’t looking for charity cases. They are looking for the probability of returns.

“We’re in it for the exit,” Rhoades said, adding that his network looks for an ROI of about 10 times its investment.

Angel investors, however, are realists. They know that even a great idea – married to a team that can probably execute – has a high risk of failure. The investors are playing the percentages.

Dallas Romanowski, who heads the Inception Micro Angel Fund (IMAF) Cape Fear said his fund members know that they will lose all their investment on about a third of the deals, and they’ll get some or all of their money back on another third.

It’s the remaining third that actually makes the investors money, “and it’s on that top 5 to 10 percent where you’re hoping you hit the home run,” he said.

Currently IMAF Cape Fear is in harvest mode, meaning that the fund has invested all its money and is mentoring those ventures and waiting for returns.

A number of area entrepreneurs and their mentors have lamented the lack of angel investment in the Wilmington area, pointing to the venture capital available in the Triangle. While University of North Carolina Wilmington’s Center for Innovation and Entrepreneurship (CIE) and other entities have helped local startups gain attention and financial traction on the statewide scene, there are also efforts to cultivate early-stage capital resources closer to home.

New on the scene this fall is the Wilmington Angels for Local Entrepreneurs (WALE), an early-stage investment network organized by Jim Roberts, former executive director of the CIE. Roberts, who ran the Blue Ridge Angel Investor Network in Asheville earlier in his career, sees WALE’s role as providing the potential of very early-stage financing that helps a local startup develop to the point where it’s a viable candidate for WIN or other angel network funding.

WALE has heard pitches from about five startups, and it made its first investment in November. Because that financial commitment to Petrics, a pet feeding and health technology system, met a minimum threshold of $50,000, the company’s pitch can now go before Angel Capital Group, a Knoxville, Tennessee-based syndicate of 12 other angel networks, with which WALE has an affiliation agreement.

Roberts said he hopes that as WALE grows and matures, it will become a fully integrated part of Angel Capital Group. He and his network members will likely be part of that growth process because angels like to be close to their investments, he said.

Cain said the same is true for WIN.

“The advantage of the angel is being closer to a company, going with somebody you believe in. That’s what excites me,” he said.

“First, there’s the passion of the entrepreneur and, second, the satisfaction of helping them. It’s personal investing and looking for a little better return than the stock market.”