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Angel investor saw his wings clipped
By Dawn Kawamoto
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 Corp. 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.
"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
realize, 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 favor 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."
And it helps to have a sense of humor 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."
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Where angel investors fear to fly
Then, a decade after he started, office-supply giant Staples purchased
Quill in a deal worth more than $700 million in 1998.
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."
