Private Placement Offering

I am back in Irvine, California this week visiting with two angel investor groups.  One of which invited me and my colleague, Sam Schmutte, to attend their investors meeting this morning.  Yesterday, we had lunch with the two officers of this group.  We spent much of that time discussing the current economic climate and its impact on investment opportunities.

In the wake of Madoff, economic stimulus earmarks, and AIG bonuses the public’s trust of financial “experts” has been shattered.  This is true as well with angel investors.  Most investors have a fundamental distrust of how agents will invest money on their behalf.  It was interesting to see how in this particular angel community, investors were largely distrustful of investment funds.  These are funds where multiple angels pull their money together to make a larger, more significant investment in a particular venture.  Most funds have one to three managers that screen and oversee the investments.  The benefit is that the single fund investment will have higher control over the operations and direction of the business than a collection of individual investments.  The negative is that individual investors have less say over investment opportunities. 

The alternative is for angel investor groups to act as networks – where businesses present opportunities to the group, and individual angels decide whether or not to personally invest.

The good news with this trend is that businesses approaching private equity firms may have a higher chance of getting some capital from each group.  The bad news is that it may not be the windfall amount they are praying for.  So, businesses are required to approach numerous investment groups with private placement offerings to raise the capital sought.