Angel investor gives time, money to entrepreneurs

Editor's note: Bill Payne will share his expertise in entrepreneurship and angel investing in monthly columns published in the Flathead Business Journal starting with this issue.

Bill Payne found a key to success early on in his career: surround yourself with people who have more experience than you do.

Almost always, those more experienced business associates already had addressed the problems and provided the insight Payne needed to move ahead.

Today, the renowned entrepreneur and angel investor -- who splits his time between Whitefish and Henderson, Nev. -- stresses that same philosophy as he advises up-and-coming entrepreneurs. His e-book, "The Definitive Guide to Raising Money from Angels," is chock-full of valuable advice.

When it comes to entrepreneurship and angel investing, Payne is the go-to guy. He's spent a lifetime honing his craft.

PAYNE'S early affinity for math and science made it easy to decide on a career in engineering. After the Peoria, Ill. native finished his master's degree in ceramic engineering, he and his first wife, a fashionista enthralled with Southern California, packed up their VW bug and headed west.

He worked as a research engineer and manager for Interpace Corp. in the mid-1960s, developing new ceramic materials and products. By the late '60s he was developing thermal control coatings for the Surveyor spacecraft while working for Hughes Aircraft. It was cutting-edge technology, but Payne was itching to get into business for himself.

"It took me two to three years in a research lab before I decided there was more to business than handing off products," he recalled.

He found a business partner and started Solid State Dielectrics (SSD) in 1971. After selling SSD to Dupont in 1982, Payne continued to work for Dupont for four years and was able to begin focusing on angel investing.

"As an entrepreneur, you need to think about what you want to be when you grow up," he said. "As I thought about an exit strategy [for SSD] it became clear to me in high-tech companies you have to pick a time to sell or you'll be blindsided" by new technology.

"I sort of evolved to being an angel investor," he said. In fact, Payne made a significant number of investments before angel groups came on the scene.

Not that angel investing is anything new, Payne acknowledged. Spain's Queen Isabella was Christopher Columbus' angel investor; Alexander Graham Bell had angels, too, when he was commercializing the telephone.

Simply put, angels invest their personal money and their time in startup ventures, generally much earlier in the life cycle of the company than venture capitalists do, Payne explained.

It's just been in the past 15 years that angels have begun to invest in groups. In the last decade Payne has been a founding and organizing member of four angel organizations, including Western Montana's Frontier Angel Fund.

Payne was appointed Entrepreneur in Residence to the Kauffman Foundation in 1995 and served in that position for 12 years, working on numerous projects for entrepreneurs and always sharing what he'd learned "from the school of hard knocks."

"We tell new angels, 'don't do what we did,'" he said with a smile. "Don't fall in love with entrepreneurs and write checks for what you think is a whiz-bang product. I probably wrote 10 checks before I thought about how much net worth was tied up in those investments."

Angels groups have matured through the years and now do a much better job of due diligence. But there's still risk involved.

If an angel fund makes 10 investments, it can expect four or five to go "belly-up," Payne said.

"Three to four give enough of a return to give us almost all of our capital back, and one investment will give a positive return on investment," he said. "The bad ones die early. Lemons rot faster than plums ripen."

Sometimes the "wild winners" mature in six to eight years. Angel investing is very time-dependent, Payne stressed.

"The only way to look at a portfolio is to wait 10 years," he added.

Payne continues to mentor entrepreneurs and has assisted hundreds of  companies in the past 25 years, including many not in his portfolio of angel investments.

His contributions aren't lost on the business world. Most recently Payne was given the prestigious 2009 Hans Severiens Award that recognizes individual accomplishments in the advancement of angel investing by the Angel Capital Association.

Awards aside, angel investing is exhilarating for Payne.

"Investors develop a respect for people who are good at managing and growing companies," he said. "I liked the energy and focus of starting the company. I consider myself to be an OK operator, but I found I liked the startup and end parts -- helping entrepreners start companies, mentor them to success and then assist them in exiting the company.

"I've always had an affection and admiration for entrepreneurs and have wanted to help them with my money and time."

 Flathead Business Journal editor Lynnette Hintze may be reached at 758-4421 or by e-mail at lhintze@dailyinterlake.com