Missoulian: Angel investors make a difference in rural America

I am honored to have the opportunity to speak before you today with a voice informed by 10 years of economic and business development work in Montana. I want to thank my fellow Montanan, Sen. Jon Tester, for extending this privilege to me.

The most interesting people I have ever met live in rural America. Most of them are innovators and entrepreneurs, because they have had to be to survive. As my business partner at Northfork Strategies, Diane Smith, author of TheNewRural.com says, “When I worked in Washington, D.C., I knew plenty of patent lawyers but not a single inventor. Within months of moving to Montana, I knew dozens of inventors but only one patent lawyer.” This speaks volumes about the challenges and opportunities we face in America to retool an economy deeply impacted by globalization and technology.

Today’s capital environment is very difficult for entrepreneurs. Before the recession, many entrepreneurs bootstrapped startups with personal credit cards. Banks once would just ask you to mortgage your house for a business loan. This, frankly, was a significant obstacle to entrepreneurship when the economy was good. In today’s climate, it’s hard to know what a house is worth, so lending on an existing asset is rare. Most bankers will tell you they are working for regulators today, not customers. Bank lending today is driven by cash flow. Most startups have no cash flow, and some don’t have many liquid assets. Banks look at history. As a result, bank debt is a very unlikely source of capital for entrepreneurial ventures which rely on a forward-looking opportunity.

Angel investors look forward at the opportunity. In 2005, we initiated a conversation with a number of high-net worth individuals who were living in Montana. In addition to investment capital, they had deep skill sets in starting and building successful businesses. In 2006, the Frontier Angel Fund, LLC closed with 33 investors who put in $50,000 each to invest in early stage businesses located in the region.

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