Detroit, MI

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When approaching angel investors, managers of early stage businesses need to think out the potential points of failure in their business plans. Common risks include failure to meet sales forecasts and spiraling supplier costs. Intellectual property is often the only real asset that an early stage company possesses, and angel investors want assurance that it is protected.

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Filed under: Angel Investing | Detroit, MI | Financing Innovation | Terry Cross

We continue our discussion with Terry Cross on angel investing with an explanation of the kinds of risks he is most sensitive to. For the most part, there is not a set of pat answers. Terry wants to see that company management has thought of potential points of failure in their business plan. Common ones include:

• Missing initial sales forecasts by a substantial period of time.
• Unfavorable changes in the cost of sourcing.
• Distribution strategy failing to deliver.

An area of particular focus is intellectual property. Often, it is the only real asset the firm possesses. Because provisional patents are so easy to obtain, Terry has no real regard for them. He prizes full patents and, in some cases, trade secrets more highly.

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Terry Cross made his first angel investment 46 years ago and has completed 45 investments. Of those, ten have "carried the freight", providing outsized returns. In the first of a series, Terry shares with us his insights on successful investments, stressing the importance of realistically estimating the addressable market for a company's goods and services.

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Filed under: Angel Investing | Detroit, MI | Financing Innovation | Terry Cross

Terry Cross made his first angel investment in 1962. His broker at the time suggested they try a private placement since "they weren't doing so well in the public equity markets". The investment was a roaring success, producing a return of almost 40 times the initial investment in 4 years. However, not all of Terry's investments were that successful. In this first segment with Terry, we gather the following lessons learned:

• Of Terry's 45 total investments, eight to ten have produced all the return, sometimes paying out 90 to 100 times the initial investment. Twenty-five burned through all their money and died. The rest are among the "living dead" with no return expected. That boils down to a success rate on the order of 20%. A recent study of angel investments suggests that this experience is not atypical.
• Over time, Terry has learned to bet on the jockey, meaning he considers the management team critical. He's also concerned with the company's value proposition and how the company differentiates itself in delivering it.
• A chief concern in evaluating a company's value proposition is the size of the market it thinks it can address.
  • If a company suffices itself with just estimating a small penetration of a very large market, that never seems to work out. The company has not determined who real customers might be.
  • A real estimate of addressable market consists of actual potential customers and a reason for why they would adopt the company's product.

In future segments with Terry, we will discuss intellectual property and risk mitigation, and the process of obtaining angel investment including the pitch, what happens after, and term sheets.

Additional Links

• The Angel Capital Education Foundation lists a number of white papers about angel investing funded by the Kauffman Foundation.

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Organizing the inaugural Detroit-Windsor International Film Festival has been an exercise in building a network of participants and contributors. Scott Dunham, the festival manager, provides insights into role of universities, the city of Windsor, and John Kelly in bringing it all together.

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Filed under: Detroit, MI | Detroit-Windsor International Film Festival | Finding Gaps | Media | Non-profit | Scott Dunham

This weekend will mark the inaugural running of the Detroit-Windsor International Film Festival. As with many non-profit undertakings, organizing the festival has been an exercise in building a network of participants and contributors. Scott Dunham, the festival manager, provides the highlights of getting this year's festival together:

• From the beginning, the commitment was to develop the festival with "Detroit style" using resources from Michigan and Windsor. The organizing committee specifically ruled out using one of the canned approaches available for purchase so as to maximize the contribution from local Michigan groups.
• Significant contributions have come from two academic institutions whose missions coincide with the goals of the festival: Wayne State University and the College for Creative Studies.
• Windsor has provided an important link into the Canadian film industry and into the Toronto Film Festival, a major North American festival.
• While the festival has been a coalition effort, John Kelly's leadership as festival director has been the glue that holds it together.

John George, founder of Blight Busters, is working to create a critical mass that will bring culture and development back to West Detroit.

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Filed under: Blight Busters | Defining New Markets | Detroit, MI | John George | Non-profit | Twelve Month Goals

The main message that John George wants to send over the next month is that Detroit is working together to solve its problems (download 3.5 minute iPod compatible video, 17MB). Among his specific goals, he wants to turn Blight Busters' neighborhood into the Detroit arts district. To that end, he has partnered with the Motor City Theatre Organ Society to restore the Old Redford Theatre and has plans to refurbish the 350 seat theater in the third floor of his headquarters. Combined with the existing Artist Village and the upcoming Motor City Java Cafe, these initiatives should create a critical mass to bring more culture and development into the area.