By Julian Matthews
June 19, 2000
Angel Investors Come Knocking At Varsity Doors
What do Michael Dell, Bill Gates, Jerry Yang and David Filo have in common? Well apart from being billionaires and pioneers respectively in PC retailing, software development and Internet businesses, the germs of their greatest ideas started development while they were still in university.
Dell struck on the idea of selling customized PCs directly to bypass commission-hungry dealers when he was still a freshman at the University of Texas.
Internet poster children Yang and Filo were bored of their PhD dissertations in Stanford and started fooling around with building a Web directory of their favorite sites, that eventually became Yahoo.
And of course, Gates dropped out of Harvard to start up Microsoft with Paul Allen.
You see a pattern here? The people at UniversityAngels.com did. They started the first online angel investor network to tap budding entrepreneurs in top universities. Now, unlike Dell and Gates, students needn't drop out to realize their billionaire dreams.
Co-founder James Marcus said he and three other Harvard Business School alumni conjured up the plan at a class reunion and started up CrimsonAngels.com dedicated to their alma mater last June.
The company has since rapidly racked up an impressive roster of 25 such sites including those for students and alumni of the Massachusetts Institute of Technology, Princeton, Columbia, Stanford, Cornell, Yale, Dartmouth, Duke, Northwestern and New York varsities.
"Business schools and universities are the fastest-growing source for Internet startups. Now, students and alumni can access investors without having to leave their dorm rooms or homes," said Marcus, who is chairman and CEO of the UniversityAngels.com.
The New York-based company sets up sites that are open to students and alumni to pitch ideas they may have for a startup. It plays devil's advocate by screening the ideas and fine-tuning the business plans before posting an overview of the new venture online.
Interested alumni get a first look-see at the business proposals on a specific site and can post advice, comments or make offers. After which, the plans are made available to over 1,000 registered member investors across the UniversityAngels.com network.
UniversityAngels.com allows only qualified individual investors with certified net worths or high annual incomes to review the full business plans - and they need to sign non-disclosure agreements to do so. If a deal between interested investors and the hopeful entrepreneur is clinched, investment terms are ironed out.
Marcus says that almost 75 percent of the services offered on its Web sites are free and the company takes a small cut, on average about 4 percent of the cash raised and a warrant position that varies on every investor-entrepreneur deal done.
Officially launched in January, UniversityAngels.com is now on a fast-track expansion drive and going global. It plans to grow to between 45 and 60 sites in the US and between 30 to 40 sites internationally by year-end.
"We are launching 25 international sites this summer and will likely add another five to 15 by the end of the year. Our immediate targets are universities in Japan, Hong Kong, the United Kingdom, Canada, France, Germany, Spain and Italy," said Marcus in an e-mail interview.
Marcus cites first-mover advantage as a factor for the aggressive expansion plans. "We have a highly scalable model that allows for rapid expansion worldwide. Reputation of the universities and high Internet penetration growth in those countries are also big factors," he said, adding that the sites will initially be in English, but may be multilingual later on.
Marcus acknowledges that the challenges of setting up in Asia might be "different."
Observers point out that Asian educational institutions do not have the academic-business linkages that some universities in the US are known for. There are few varsity incubators to encourage the fruition of research ideas into commercial products or services and no ingrained culture encouraging students to think like entrepreneurs.
UniversityAngels.com may also need to overcome a gamut of legal, administrative, language and cultural hurdles, which differ from country to country.
"We have a partner in Japan and another in Hong Kong that is helping us get things started and we are researching the marketplace and refining our model to fit the market. But we are confident our service will be successful throughout Asia. Angel investing will eventually be as popular in other regions of the world as it is in the US and we want to be a part of that evolution," said Marcus.
He added the UniversityAngels.com model consolidates and streamlines the process for early-stage angel funding, which currently is "highly fragmented, unstructured and inefficient."
Marcus does not believe angel investors may be financially muscled out by bigger, established venture capital funds that are moving rapidly into the region. "Angels have always co-existed with venture capitalists. In the US, angels invested $30 billion last year despite all the venture capital fund activity. The choice for entrepreneurs isn't solely angels or VCs it should be both, at different stages of development," he said.
In Europe, UniversityAngels.com already has an office in London, which it plans to expand soon. "We will likely have people on our payroll in major cities, but not necessarily a physical presence in each market we serve," he said.
Marcus declined to disclose the amount UniversityAngels.com is spending on its expansion drive, but said the company will likely be profitable between 18 and 24 months. "We are also not thinking about any type of public offering presently. Being familiar with the IPO process, we have more than enough on our plate right now with our expansion plans," he said.