Alana Semuels reports in the LA Times: Startup funding scarce. Who was to blame?

He was someone I met outside my usual trusted sources, but here I was Vice Chairman of a new nonprofit whose goal it was to promote Orange County to the world. This was an honorable undertaking, like motherhood, so my guard was down. Who would expect to find a scam artist here, let alone our illustrious Chairman? The rest of the board was a group you could trust; it included the incoming chairman of the Orange County Business Council, Tom Phelps, Toshiba Senior Vice President Chris Harrington, and many other local luminaries, a virtual who's-who in Orange County.

I'd been warned, but I chose not to listen; I had my own personal interactions with John P. Garcia, founder/President of Angel Strategies and Chairman of Orange County Innovation. I liked John, looked up to him. He had his own firm and we were both operating in the realm of finding investors for early stage high tech companies. John had placed The Venture Alliance's Elliot B. Reiff on the board, too, and we all seemed to hit it off.

I was operating through Tech Coast Angels and was about to learn that the business ethics that I took for granted in TCA were not the way everyone operated. Others would lose more money than I did. When I heard from Hattie Bryant and her misadventures with Garcia I encouraged her to take the story to Alana Semuels who reports in today's Los Angeles Times that the hope of attracting venture capital allowed Garcia to ply fees and equity from many unsuspecting entrepreneurs.

Myself, I was too jaded. Losing money on early stage deals happens all the time, even though Otra Beer broke all records for failing quickly. I wrote the check in the Spring of 2006 and by October the founders sent an email announcing the company's imminent collapse. It was only $20,000, but the poor timing of my investment made me suspect others must have known it to be more risky than I did; Elliot Reiff and John Garcia would've known. I sent Elliot an email saying something like, "wow, that happened fast!". I received no reply and have never seen or heard from him again.

In one of my earliest meetings with John he invited me to an event at the Queen Mary in Long Beach, "the Otra Beer girls will be there". That sounded more interesting than many of the deals I was working on. And alcoholic beverage deals get a lot of investor attention, and not just because of the free samples. There are lots of potential acquirers, sometimes for big exits, like when Bacardi bought Grey Goose in 2004 for $2 billion. At TCA we often see alcoholic beverage deals. So when John and Elliot had pumped the opportunity, Otra Beer appealed because it was more mature, a company looking for a B-round. Angels see many early stage deals looking for an A-round, but many of these deals, more than half, will never get to a B-round. That's the risk that's part of angel investing.

But before the beer went flat my relationship with Garcia was long over. There were too many promises he was making to Orange County Innovation, empty promises. So I approached the board, one member at a time; many had their own concerns about his integrity. After making my case the board gave me authorization to ask John to go away quietly, no hard feelings, but he rejected that offer and used all his charm to appeal. Eventually the board relented; what nonprofit wants conflict? But it was a decision I couldn't live with, so instead I resigned.

Read the article and watch the video.

Ever wanted to hear how angels think of the terms they offer and the returns they expect? And what will happen if the outcome is less than a complete success? That's what Angel Capital Association Chairman John Huston shares.

Today, it's a working session. Download John's 10 Exits, Generic Term Sheet and Term Sheet Checklist then follow along with his candid commentary on setting expectations. Besides being Chairman of Angel Capital Association, he's developed these documents for the deals he does at Ohio TechAngels.

Show #231 (45:58) Listen

Events: the Tech Coast Angels host Fast Pitch at UC Irvine, June 9th.

"Recession Leads to Decrease in Angel Group Investments", reads the 2009 ACA's Angel Group Confidence Report.

socalTECH's Ben Kuo reports on the reaction to this drop in Los Angeles.

The EBAN tour visits Silicon Valley Bank on Sand Hill Road.

Our busy tour of the Valley winds up with a visit to Silicon Valley Bank where we meet up with ASTIA's Sharon Vosmek, Golden Seeds' Jo Anne Miller, Life Science Angels' founder Allan May, Sand Hill Angels' Jim Connor and SVB's Laurie Lumenti Garty. After lunch we get a technology briefing at Microsoft then end the tour with Ian Sobieski and the Band of Angels at the Los Altos Country Club.

Couldn't make it to Stanford this week for the EBAN tour? Join us for this session when the European Business Angel Network's tour of Silicon Valley meets up with Garage Technology Ventures' Bill Reichert. EBAN Managing Director Claire Munck has teamed up with Stanford's Burton Lee to create a whirlwind tour of the university and the local angel and venture capital highlights. This morning it was Bill's turn to present.

Listen for his comments about breaking even, "which almost never happens, versus controlling your own destiny". With a little prompting from the audience he shares his ideas on "patterns of failure" as it relates to investing in early stage startups.

Show #230 (1:12:08) Listen

Stefan Heuser discusses the Siemens Technology-To-Business Center based in Berkeley.

It was only weeks ago I was in Madrid for EBAN's 9th Annual Congress where I made a lot of new friends in the European Business Angel world. So when EBAN Managing Director, Claire Munck, asked if I'd like to tag along when 12 angels toured Stanford and the Silicon Valley for 3 days, how could I say no? So here I am in the Valley.

Claire, together with our local host, Dr. Burton H. Lee of Stanford's School of Engineering, have coordinated a jam packed schedule. Over the course of these 3 days we'll visit with Siemens' Stefan Heuser, President of their Technology-To-Business Center, Kauffman Fellows Program President, Phillip Wickham, attend a mini-summit on Europe-US Angel Investor Networks at Stanford, visit the PlugandPlay Tech Center incubator, visit Microsoft, meet Garage Technology Ventures' Bill Reichert and Wellington Partners' Ram Srinivasan, and too many other activities to mention. Plus, I'm meeting many future guests for the show!

Do west coast angels pay more?

Are New Yorkers more financially conservative?

The rivalry on the coasts will go on, but one thing is certain, the New York Angels are paying less when they're investing in early stage deals right now. "The valuations sound outrageous to anyone raising funds three or four years ago."

David's the founder of the New York Angels, Angelsoft and The Incubator at RTV. Is anyone doing more to promote angel investing and entrepreneurship?

Show #229 (37:58) Listen

It's Fast Pitch season!
Jump on the Inland Empire's event May 14th at the Hilton Ontario Airport. Then in Orange County at UC Irvine on June 9th.

It was nice to catch up with Permjot Valia in Madrid last week; he's the London-based Business Angel blogger. Now he announces his first angel investment in a year. Why now? Is it the bottom of the market? He says so. Read more...

Has it touched your life, affected one of your loved ones?

"Alzheimer's is the public health threat of the 21st century," says Maria Carrillo, Director of Medical and Scientific Relations at the Alzheimer's Association in Chicago. Although it's the 6th leading cause of death in the US, and working its way up, "there's so many different avenues of research that are being pursued right now that give us a lot of hope". Like drugs in Phase 3 trials, for example.

Listen to something a little different? It's good for your brain. Try this interview with Dr. Carrillo for example; it's an example of the topics that make up my new show: After the Cottage: Stories of Aging and Eldercare. Something to consider for all us aging Baby Boomers.

"CAPCO's are the most insidious, complex effort to raid city and state treasuries in the name of venture capital." I didn't know what a CAPCO was until I met with Bill Payne in Las Vegas last month. Over breakfast he described the work George Lipper has done over the years to expose these scams.

George has left NASVF in protest over the organization allowing CAPCOs as members, "it'll be a few years and they'll be running the organization". So he's built a new website to continue his crusade, LipperCurrent.com.

Besides scams we talk about Seed funds. Is it a good time to start a new Seed fund? "Only if you can be very patient."

Show #228 (44:59) Listen

Events
Register for UCLA's upcoming 2009 Entrepreneurs Conference on May 8th. Use discount code: MP_TFPS

It's Fast Pitch season! Jump on the Inland Empire's event May 14th at the Hilton Ontario Airport. Then in Orange County at UC Irvine on June 9th.

Frank, here are a few of the more significant stories from the database about CAPCOs.
First here's the recently released audit from DC

With sharing CAPCO information, it's hard to know where to start. I have more than 200 studies and stories in a database, dating back more than 6 years. And in addition, of course, we have lots of documents we've used to help people understand the program. I'll start by offering you some of the links to stories in the database related to various state interactions with CAPCO programs. Even the best have been questionable.

Missouri State Auditor's Report
Chapter from Daniel Sandler's book on VC and Tax Incentives
Fifth Annual Report of the New York CAPCO program
Fourth Annual Report of the New York CAPCO program
Third Annual Report of the New York CAPCO program
Governing Magazine Article
Colorado Office of Econ Dev responds to Adam's "study" on CAPCO effectiveness
Colorado Audit of CAPCO program
Milwaukee Journal story on pending CAPCO legislation
Denver Post story on Audit of Colorado CAPCO
Palm Beach Post story on Florida CAPCO (among my favorites)
Rhode Island story on considering CAPCO and
Julia Rubin public radio interview
Understanding CAPCO booklet
And even the critical Louisiana audit, where it started

In case you haven't seen it, here is the DC auditor's report issued 3 weeks ago. And the story about it posted in the DC Examiner News

David S. Rose, founder of the New York Angels and Angelsoft CEO, today was named "Mentor of the Year" by NYU's Stern School of Business.