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Startup evaluators help economy grow

There’s been a great deal of talk about whether investment opportunities for entrepreneurs are still lucrative enough to pursue. From venture capital to crowdfunding to organizations like Tech Coast Angels, questions abound as to whether there is enough capital to fund worthy companies.

I submit that it’s not a question of money, but rather time for investors to conduct adequate due diligence to effectively evaluate all the opportunities before them. There are hundreds of millions of dollars from private equity and investment groups sitting in zero-interest bearing accounts just waiting to be deployed that aren’t.

The reason is there are not enough people who are qualified in analyzing each company for their intellectual property, market opportunity and management team’s potential.

The effort is critical and without it, investment firms and angel groups simply will not fund new ventures. The problem is that the average time to conduct appropriate due diligence can be hundreds of hours before getting to a term sheet.

Pouring over technical, financial, management and marketing plans is also something for a trained eye. Therein lies a big challenge: filling the need for skilled analysts who are able and willing to take the time needed to review a startup’s investment potential.

But with every challenge, opportunities arise. I believe we as investor groups need to not only provide capital to a company, but also be ambassadors by educating others to join our efforts in funding the innovation economy in San Diego and throughout the country.

We can do this by establishing volunteer analyst training programs to build up our industry’s capacity to evaluate the merit of a startup. It’s something we at Tech Coast Angels have been undertaking for nearly a year.

Here’s how we’ve taken on this idea. Candidates are those interested in eventually being part of the startup economy and are fielded from a wide range of sources — including postdoctoral, MBA or similar programs — as well as professional backgrounds in life sciences, engineering, medical devices, computer science, ecommerce, marketing, software, application design and social media.

They are provided a six-month, unpaid training program that requires about 25 hours per month of their time to evaluate companies under the supervision of senior training analysts and other members of Tech Coast Angels. That includes up to as many as three half-day screening meetings each month. At the completion of the program, each individual will be equipped with:

• The ability to evaluate early-stage life science and technology companies and identify the ones that are good investment opportunities.

• An understanding of the deals process, including due diligence analysis used by many investment companies.

• A skilled understanding of the inner workings of angel investing.

More importantly, the analysts will have many opportunities to meet the company that they analyze, as well as angel investors, all while playing an active role in the enhancement of the local entrepreneurial ecosystem.

The multiplier effect for increasing the well-being of the analysts’ economic fortune as well as the companies seeking investment from Tech Coast Angels and the entire innovation and investment community is nothing short of significant.

All investors — private equity, venture capital, angel or crowdfunding — should be at the forefront of this initiative. It’s not only in their collective interest, but it’s the right thing to do.

Scatizzi is head of the Analyst Training Program for San Diego Tech Coast Angels, the largest angel investor group in the United States, by number of investing members. The organization provides funding and guidance to early-stage, high-growth technology companies in Southern California. He can be reached at jack@techcoastangels.com.

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User Response
2 UserComments
Bernie Dixon 8:30am January 28, 2014

Jack: Great commentary. We at the Atlanta Technology Angels have watched your progress and are happy to take advantage of the initial thinking and actions your group has taken. We are converting our current "intern" program with Georgia Tech and Emory University into a full fledged analyst program this year. Thanks for your thought leadership in this area. Glad to stay connected.

Russ McKelvey 2:35pm January 25, 2014

Jack, thank you for this excellent article. I hope that the many investors interested in crowdfunding take your advice and go learn how to evaluate emerging growth companies. It is in everyone's best interest to invest responsibly and learn the ropes about this high opportunity but higher risk form of investing. I hope your article increases awareness that there are places to go for beginners to become educated and make connections.

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