WV investors to help fund small businesses
West Virginia entrepreneurs now have a new private resource they can tap to help finance their small business startup or expansion.
Gov. Earl Ray Tomblin and Appalachian Regional Commission federal co-chairman Earl Golh on Tuesday joined Bowles Rice managing partner Tom Heywood to announce the launch of the first statewide angel investment fund.
The private fund, backed by a network of affluent West Virginia investors, will provide financing for new small business, product innovation and expansion of existing businesses, along with a host of mentoring, training and employee recruiting services for developing companies.
"It's West Virginians helping West Virginians," Tomblin said. "It's a way of having a whole new ray of possibilities for people who want to start a business in West Virginia."
The angel investing concept has been around for many years, though not on a large-scale in West Virginia. It's similar in philosophy to venture capital investing, though usually on a much smaller scale.
In the venture capital model, fund managers take other people's money to make large scale investments in an emerging business concept. The venture capital firms usually exert a lot of control over the target company and its governance and business decisions.
Angel investments, however, involve private individuals using their own money to give to a business or concept they find attractive. The size of the investment tends to be smaller and investors take a more hands-off approach with the company they invest in.
Gohl said the Appalachian Regional Commission noticed this kind of investment activity was lacking in this part of the country. As a result, the commission began promoting it in West Virginia and other states.
Heywood said a group of about 100 people started up the West Virginia Angel Investment Network about four years ago in an attempt to help entrepreneurs find willing investors in the state.
He said this type of investing is important because the investment targets are usually those people in the early stages of developing their business idea.
"They're the young entrepreneurs," he said. "This is can be anyone from a garage entrepreneur to someone with a new technology."
For the first three years, the network consisted of a series of one-on-one interactions and conversations with people who tried to connect people looking for capital with investors willing to lend.
Heywood said the network eventually grew and started attracting more investment opportunities.
"The board of the original network looked and said, 'You know, the deal flow is really increasing, the opportunities are really increasing -- we think we should now create a fund to invest in this rather than just create opportunities for people to invest individually,'" Heywood said.
Last September, the West Virginia Angel Investor Network was one of five groups that split a $235,000 grant to develop angel investment funds.
With the money, the group hired Minnesota-based RAIN Source Capital to provide technical assistance in creating the fund, which came to be called West Virginia Growth Investment LLC.
The next step was to raise capital from investors -- a task Heywood said was easy to accomplish.
"They came forward in droves," he said.
The fund has so far raised about $3 million, and Heywood, who serves as vice-chairman of the fund, said money continues to come in.
"I think that says a lot about the passion Mountaineers have for the Mountain State and for sense of opportunity that's out there today among the investment community," he said.
Heywood said he didn't think they would have received that kind of response 15 years ago, but now the economy of the state has moved forward to the point where it supports that kind of activity.
"There's so much happening in our state coming out of in the high-tech corridor (along Interstate 79), coming out of the oil and gas patch, coming out of the eastern panhandle," he said. "People see it's going to be a golden age for investment in our state."
Tomblin said this type of investment activity is more critical now due to the effects of new banking regulations enacted after the 2008 financial crisis that have tightened bank lending standards.
"With the change in the banking rules...it's become more and more difficult for small businesses to get the kind of financing they need," he said. "It's not because our banks don't want to do that, but a lot of it because of the federal regulations and stipulations the hoops that you have to jump through to get a loan as a small business."
Heywood also emphasized the fund is 100-percent private. No state tax dollars will be used for its operations or lending.
"We're not seeking tax credits, we don't receive tax credits, we're not seeking any state assistance -- we're here to assist the state and be a tool in the toolbox of the state," he said.
"We're just trying to be one piece in the overall equation, one part of the quilt of financing opportunities."
Fund managers will hold their first organizational meeting Thursday in Charleston. Heywood said anyone interested in learning more about the fund can visit its website, www.wvgrowth.com.
Contact writer Jared Hunt at email@example.com or 304-348-4836.