I've been spending some time lately with the Pasadena Angels, a group of "angel" investors with a decade of experience in the early-stage venture capital space (really, more than that) and an admirable track record. I also quite like their motto: "It's more than money." In practice, this means that the Pasadena Angels — a group of individual investors working together in Southern California — provide mentoring in the same measure as financing to startup companies.
Entrepreneurs obviously need access to money. But they also need advice, guidance, and at times, a total rethink.
From what I've learned, the Pasadena Angels put young companies, some 300 per year, through their paces. Unlike notorious "pay to pitch" angels (a cadre that seems to be fading away), they're set up as a nonprofit, charging no fees for the opportunity to present business plans to their membership. I joined them a few weeks back for a culminating stage of this process, a breakfast pitch session where several entrepreneur finalists made their cases.
Out of this, the group decided to organize a "Series B" investment of $475,000 in Wasatch Microfluidics, an interesting biotech firm based in Utah that has developed some unique technologies for analyzing proteins in the kind of labs that big pharmaceutical companies operate. The Pasadena Angels' investment covers close to half of the funding that Wasatch is looking for right now, a total of $1 million.
Biotech can be a bit of a challenge for VCs because the timeframes associated with disruptive innovations are a lot longer than they are in the consumer Web space. You need a lot to develop a new cancer treatment; you need rather less to create a photo-sharing app for the iPhone (Instagram's zero-to-$1 billion-in-less-than-two-years story is proof of that).
However, Wasatch is more in the business of refining and extending existing technology than it is reinventing the wheel. You might call what it does "process innovation," versus the New New Thing approach. I'll let the Pas Angels explain it:
This...technology pushes past the old Human Genome Project printing technologies of its competitors because of its groundbreaking 3D design that uses flow to cycle molecules back and forth over a surface. The Pasadena Angels are excited to support Wasatch’s unique product expand into the pharmaceutical and academic research communities, a niche $700 million market that includes a potential 14,000 labs.
I think the lesson here is that it's easy to look at VC and get distracted by all the Web companies with funny names funded by the Big Boys to the tune of hundred of billions by Silicon Valley investors. But the ecosystem is really much more diverse than that, and includes numerous gradations within several important industries. By looking at the way that VCs operate at various levels of the funding process, from seed investments right up to larger rounds that get done pre-IPO or acquisition, you can get a better picture of how entrepreneurship is fueled.