Entrepreneurs may be seeing angels in Rhode Island.
A crew of about 30 individual investors have gotten together to form the Providence-based Cherrystone Angel Group, Rhode Island’s only angel organization. Its goal is to provide early-stage funding to startup companies in a marketplace where cash is difficult to attain.
“Venture capital firms have backed down since the dot-com bust,” said Jerry Schaufeld, director of the Slater Fund, which is co-sponsoring Cherrystone. “It’s up to angel groups like ours to keep startups afloat until they can withstand the scrutiny of more sophisticated capital providers.”
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According to Garrett Hunter, Cherrystone’s secretary treasurer and president of Business Development Company of Rhode Island, the group plans to invest in at least two companies in 2004 with about $1 million in capital. The group generally expects to invest between $100,000 and $500,000 in each portfolio company. Hunter added that the group has the financial capability to back more than just two outfits should the opportunity present itself.
Cherrystone had its first meeting on Jan. 20.
The investment group is the product of about eight months of collaboration set forth by Gov. Don Carcieri. Through Michael McMahon, executive director of the Rhode Island Economic Development Corporation, the Slater Fund teamed up with the Business Development Company to form and co-sponsor Cherrystone.
“Such a group is missing in the investment community in the state,” said Hunter, whose company committed $250,000 toward Cherrystone’s investment goals. “Michael (McMahon) talked about the need for sources of investment. It’s an area where Rhode Island was not strong.”
Cherrystone members fit Federal Trade Commission guidelines for angel investors in that each has $1 million in assets and $200,000 annual income a year. A married couple must have income of $300,000 and $1 million in assets in order to join.
“It wasn’t difficult to find qualified members and we ended up with a group that has a diverse business background,” he said.
Schaufeld said he found diversity to be a key aspect of the successful angel groups in Massachusetts he researched.
“It’s powerful in that one member of a group may have expertise in an area someone else does not,” he said.
Jeff Jacober, CEO of The Ocean Group Inc. in Providence, and a Cherrystone founder, agreed. “By forming a group, we’ll be able to multiply the resources that any single investor can provide to a company,” he said.
Cherrystone will be accepting applications from a wide variety of industries, which is a little different from the standard angel group. Usually angel investors get the most out of an investment in the technology sector, a high-risk industry with the potential for a lucrative return on investment.
However, Schaufeld said the group has a much larger mandate to provide funds for different entities in Rhode Island.
“We realize the breadth of interest in such funding is broad,” he said. “We have the knowledge, business contacts and experience to assist more than just tech-based companies.”
At its first meeting, Cherrystone saw presentations from a marine technology company from Portsmouth and a Providence-based medical device company. There are two other companies expected to present proposals to Cherrystone.
Bill Jackson, the founder and chairman of Brown Venture Forum, said Cherrystone is a welcome addition to the Rhode Island investment landscape.
“It fills a need. Cherrystone will make funds more easily accessible in Rhode Island,” said Jackson, who is a member of Massachusetts-based angel group Walnut Venture Partners.
He added the members’ experience in investing in companies may be a determining factor if they are successful.
“The more creative and more knowledgeable the members are, the better chance the companies they are supporting will be successful,” he said.
Katherine O’Dea, executive director of the Rhode Island Technology Council, is excited to have an Ocean State-based angel group. Cherrystone’s presence may be enough to attract entrepreneurs that depend on venture money to Rhode Island.
“Those who need the cash, particularly entrepreneurs in the life sciences realm, will have more opportunity. Thus, you’re likely to see more successes,” she said. “But, there will always be a percentage of entrepreneurs that are not willing to give up a share of their company to an angel group.”
She said about 30 percent of the members belonging to the council depend on funds from angel groups and venture capital.
Schaufeld said that in five years he hopes Cherrystone would be “inundated with deals and be making people a lot of money.”
“I think the measure of success will be the level of vibrancy of the group,” he said. “We want lots of involvement and for this to be a fun process.”
