Funding deals take flight with angel network

Houston Business Journal, by Jennifer Darwin

Chris Wasden helped develop a proprietary medical device to test a person''s hearing that he says is quicker and costs less than traditional testing.

But nobody was going to hear about the new developments at his Missouri City-based company, called Tympany Inc., unless the entrepreneur was able to find financial backing.

Wasden made a presentation on Tympany, to the Houston Angel Network on Jan. 15, and by March 15, he had $500,000 in seed funding from Michael Sklar and Nest
USA.

The Houston Angel Network is an exclusive group consisting of high-net-worth individuals, or angels, who invest in start-up companies. Overall venture capital investment may have significantly decreased in recent months, but
Houston''s angel investors have gotten more organized and are doing their fair share of deals.

To become a member of the network, a person must meet the minimum net-worth requirements set forth by the U.S. Securities and Exchange Commission for accredited investors. They must have a tangible net worth of $1 million or an annual income of $250,000 for the past two years with an expectation that income level will continue.

The group, which goes by its acronym, HAN, was originally established in 1999. The organization was tied to the Houston Technology Center until January of this year, when it officially broke out on its own.

Since that time, members have listened to about 24 presentations from companies pitching their business plans. Of those, five companies have received funding, and four deals are in the works, says Michelle Weisblatt, HAN''s managing director. That means between 20 percent and 40 percent of presenting entrepreneurs are securing funds, she says.

"I think it''s pretty good. You keep hearing that companies aren''t getting money, but we''ve had companies (funded)," Weisblatt says. "If one out of every four presenters every month gets funding - I think that''s pretty strong. "

PITCHING PROCESS

January was a good month for the four companies selected to pitch to HAN''s membership: half of them walked away with funding deals.

In Tympany''s case, the firm received enough money to carry it through until it breaks even. Wasden expects the company to receive approval from the U.S. Food and Drug Administration by the end of the summer, at which time Tympany will start marketing its product to doctors.

Another presenter, Houston-based Vuico, netted $1 million as a result of that January meeting. Dominion Financial Partners organized the financing round for the wireless and mobile computing software company.

Vuico has a three-year exclusive arrangement in
North America and South America to distribute Bluegrid wireless middleware developed by Japan''s NTT Software Corp. Vuico was created to adapt and enhance NTT Software''s wireless technology and applications.

Another entrepreneur hoping to get a few minutes in front of HAN''s monied members is Tom Klein, founder and CEO of Houston-based Triumph. Klein''s company intends to become the outsourced sales force for high-tech companies and other high-end service companies.

Klein filled out the 22-question application and executive summary that all entrepreneurs must submit in order to be considered by HAN. Information on Triumph is posted on HAN''s deal-flow database, which is only available to members.

An agenda-setting committee will soon decide whether Klein is one of the three to five presenters at the next meeting, which will be June 19.

Weisblatt says if a company is not selected in the month it applies, it might be considered the following month as well, but sometimes the competition is stiff.

"It really fluctuates," she says. "Some months we''ll have seven or eight applicants, and some months we''ll have 14."

Klein is competing against owners of other newly-formed companies, many of whom may have found that traditional venture capital is not an option for them.

Klein himself tried the venture capital approach, but was told an investment below $2 million to $5 million was too small for VCs. "They suggested I try to find some angels," he says.

"Most VCs are getting away from startups," explains Dennis Murphree, managing general partner of Houston-based Murphree Venture Partners. "They got burned so bad by the dot-coms." Murphree does not think angels are funding more deals this year over last, but he says they are more organized, more sophisticated and are doing smarter deals.

"The deal flow is less, but the quality is much better," says Murphree, who was one of the people who helped organize HAN. "It''s an awful rugged time to raise money. It''s hard for us as VCs, and it''s hard for the entrepreneurs. Everybody''s wary and everybody''s cautious."

Kraettli Epperson, a principal in the Epperson Group, is one of those angels looking for investment opportunities in early-stage companies. That''s why he attends HAN''s meetings each month.

"Oftentimes HAN is able to find companies out of the
Medical Center and out of Rice University, and that''s what we''re really looking for," says Epperson, who is also involved in HAN''s steering committee. "We''ve had a really good experience with HAN. Most of the people are interested in building new companies."

Weisblatt says it''s difficult to track how many deals have been precipitated by HAN because it takes anywhere from 30 to 90 days to complete a deal after the company''s presentation, and the principals are often so busy they neglect to report the transaction.

HAN organizers are not interested in pumping up its membership numbers, although the group has grown from 28 to 60 members since November. The members want to be more selective and wait for people with a good mix of operations and investment experience, Weisblatt says.

"For the number of people we have, we''ve done extraordinarily well," Weisblatt says. "I''m very pleased with the way things have gone thus far."

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