Start-up touched by angel (investor)
By Clint Swett -- Bee Staff Writer
Published 2:15 a.m. PDT Wednesday, June 11, 2003
Andrew Knight and Destin Valine signed the lease on their first rental office space Tuesday, a week after they nailed down a commitment for up to $5 million in funding for their fledging technology firm.
Unlike many entrepreneurs, the founders of software start-up Cotère Corp. didn't score their cash from venture capitalists.
Instead, Knight, the chief executive officer, and Valine, chief technology officer, relied on a lower-profile but still substantial source of money -- the angel investor.
Angels typically are wealthy individuals looking to invest in early stage companies and participate in their growth. While VCs grab most of the headlines, angels invest nearly as much money in start-ups and do many more deals.
According to research by Jeffrey Sohl of the University of New Hampshire, angel investors sunk $30 billion into 50,000 deals in 2001. VCs by contrast invested $36 billion in about 4,000 deals.
For Knight and Valine, the advantages of finding an angel investor were twofold. First, their investor, a partnership led by Dale Bicknell of West Palm Beach, Fla., didn't demand a substantial piece of the company, Knight said.
Some VCs asked for more than 50 percent equity, seats on the board and a shift in business strategy, Andrews noted.
Secondly, the partnership was ready to move much more swiftly than the VCs. "Because they didn't have so many deals to look at, they weren't swamped," Knight said. "They were ready to move quickly to the next step."
The major difference between VCs and angels are their business goals, said Joe Milam, a Roseville investment manager who has steered some of his clients' money in start-up companies.
VCs are in the business of maximizing returns for their investors and want the firms they fund to either go public or be acquired as quickly as possible, said Milam, a principal in Legacy Capital Management.
Angels, he said, quoting local investor Mark Zetter, are like grandparents. "They want to participate and contribute to the growth process ... they want all the fun without the heavy lifting."
But angel money, while plentiful, can be hard to find. Because there is no formal list of angel groups, putting investors and entrepreneurs together is often a matter of luck.
Such was the case for Knight, who was introduced to Bicknell by a mutual friend. After presenting their business plan and having their software evaluated by a team of engineers in late March, Andrews and Valine got the nod, and the first stage of funding flowed into company accounts last week.
While declining to say how much equity they had to give up, Andrews said it was far less than what VCs wanted.
Bicknell said he found Cotère's prospects attractive. "I like the growth potential of the company. ... They actually have a product." That means most funding will be used for marketing and sales.
Founded in 1999, Cotère now has four employees, with two more to be hired. The company already has two products on the market. One, Access Point, is Web-based software that allows authorized companies to easily connect with public agencies to download DMV records, criminal records and other data. The software is currently being used by Datalink Inc., a Sacramento records search firm.
The second product, Relay Point, lets businesses gather data from a variety of different computer systems without expensive or customized programming to make the computers communicate with each other.
If a bank, for instance, acquired another bank, Relay Point would allow their two systems to easily exchange data.
While major companies such as IBM and BEA make such products for large corporations, few serve midsize businesses, an area Cotère intends to target.
"Nobody's addressing the mid-size business, and that could be a huge market," said Susan Eustis, president of WinterGreen Research in Lexington, Mass.
While Cotère has no signed deals for Relay Point, the software has sparked the interest of one Silicon Valley company.
"After seeing what Cotère has done, their product seems to have a lot of potential," said Mario Chaves, chief executive officer of Avantica Technologies in Menlo Park.
Avantica, which integrates corporate computer systems, does extensive work in Latin America. Chaves said Relay Point could work well for some of his clients who have a mish-mash of incompatible computers.
"We can always call in a large vendor like IBM, but what I like about Cotère's technology is that it's very efficient," he said. "You can do an implementation in a fraction of the time."
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