Angel investor saw his wings clipped
Steve Miller learned a lot about business while growing up in Chicago, spending many afternoons at the office-supply company his father and uncle founded.
After graduating from the University of Illinois with a bachelor's degree in marketing, he joined the family's Quill full time in 1988. He went on to work in the company's marketing department, ran its Canadian distribution center, oversaw a line of office products, and eventually developed its e-commerce Web site.
Then, a decade after he started, office-supply giant Staples purchased Quill in a deal worth more than $700 million in 1998.
"I worked at Staples for six months and decided that the office-supply business, as exciting as it was, was not the field I wanted to stay in," Miller, 35, said with a sarcastic laugh. "The Internet bug had bitten me, and I wanted to be involved somehow. I could start a company, but I didn't have a great entrepreneurial idea and I knew I didn't want to work for someone else.
"But one avenue that was attractive to me was taking some of the money from Quill's sale and investing in companies where I could use my experience in building Quill's Web site."
So Miller became an "angel" investor- someone who lends personal funds to newly formed companies that need to bridge the gap between start-up money from family and friends to more formal venture capital. What he didn't realise, though, was how quickly his wings could be clipped.
It was a period when the markets were entering a surreal euphoria as share prices soared, dot-coms were born on little more than a prayer, and valuations for these new companies were climbing into the stratosphere.
"Little did I know a dot-com company valued at $10 million (before any investments) was the exception and not the rule. The investments I made then were more expensive than what I would pay now," Miller said. "I didn't know any better then and didn't know any differently because I was new at it."
For Miller, 1999 and early 2000 were periods of extreme swings. "It was the best of times because there was a lot of excitement and opportunity, and the worst of times because not all of the companies deserved one-tenth of the funding they received, if at all," said Miller, who works out of his Chicago high-rise apartment and holds business meetings at a nearby Starbucks.
Feeling that he lacked a firm financial background, Miller eventually teamed with Bruce Barron, chief executive of Molecular Geriatrics. The two created Origin Ventures, which invests around $500,000 in e-commerce companies in the Chicago area. The pair have invested in iNest, a Web site that features new homes for sale, and Home Director, a spinoff of the former IBM home networking solutions unit.
Separate from Origin, Miller has personally invested in two more companies: VideoHomeTours.com, a video production business that showcases homes for sale on the Internet, and SchoolKidz.com, an online school-supply store. "I invest in what I know, and e-commerce is what I know," he said. "I know it's out of favour and people look at me sideways when I say I invest in the sector, but I believe there's still good opportunities out there in niche markets."
In between those opportunities, however, Miller has felt his share of pain. As the market turmoil pushed stocks to rock-bottom prices, for example, he worked with two of his portfolio companies to secure additional funding- but one was not able to get an amount that was higher than the previous round of financing, resulting in what is known as a "down round." Investors prefer to have their companies receive higher valuations with each round, making their initial investments more valuable.
"It was a choice of going out of business or doing a down round," said Miller, who declined to identify the company. "I still believe in the company and their business and where it's going. They're generating revenue and meeting their milestones. It's just a case of a difficult environment to raise funds."
Moreover, he says, angel investors need to do more than just open their bank accounts to nascent businesses. "A good angel investor has contacts and the ability to roll up their sleeves to help a company get venture funding. And a good angel will also have good marketing, finance or operations experience," Miller said. "It's wrong and even detrimental to a company just to give money."
And it helps to have a sense of humour to see you through the tough times. Miller, who once trained with the famed Second City comedy troupe, has retained his appreciation for the unconventional and the importance of persistence.
"I was toying with the idea of becoming a comedian but didn't. But one thing I did take away from improvisational training was you learn to never say no, because the scene would just die," Miller said. "With angel investing, instead of saying no, I try to see if I can build on a kernel of opportunity".
Back to: Assessing the dot-com carnage Special Report
