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An Overlooked Resource for Rebuilding Local Economies: Angels

Locally focused investors support the innovative entrepreneurial ecosystems that will produce high-paying jobs in the post-pandemic world. Public officials can learn a lot from their angel investors.

A notebook with angel investor sign.
(Vitalii Vodolazskyi/Shutterstock)
Vitalii Vodolazskyi/Shutterstock
While the news media and public officials focus on COVID-19’s devastation of small businesses and double-digit unemployment, there’s a sector of the economy that’s already setting up for the post-pandemic economic wave. It’s the world of startups led by bold, innovative, talented entrepreneurs and supported by local investment “angels” — individuals who use their own money to provide the seed capital needed to keep the lights on and cover payroll in a startup’s earliest stages while advising and steering management.

Most elected officials, city and county managers, and finance officers probably have heard the term “angel investor.” But they often confuse angels with venture capitalists, companies that pool money from pension funds, corporations and other large investors and typically step in later in the business development process. VCs are much less likely to be motivated by concerns about local investment. They’re looking to invest multi-millions, not just five figures, wherever opportunities lie. Angels provide the early stage, local startup money and take bigger risks of wipeouts.

My interest in angels is both professional and personal: I’m a member of several angel investment groups in my community of Orange County, Calif., and one thing I’ve learned is that very few in government put in the time it takes to meet with nearby angels, find out what they are doing, and help them build a local ecosystem that fosters business innovation and the high-skilled, high-paying jobs that will support their tax base of the future.

Pundits say that the economy’s next “new normal” will be different. Yet in the world of economic development, I don’t hear much about strategic thinking — and most importantly, outreach — to identify new growth drivers at the local level. But that’s what local angel investors are all about, and here is a sampling of the diverse opportunities that they are screening every day:

Gig platforms: With layoffs in the tens of millions as the pandemic continues to devastate business large and small, many workers will lose their jobs permanently and be thrust into the gig economy. The angel money is actively seeking opportunities in the tech platforms that support and promote these workers. Think about services that folks need and want that require high levels of personal trust yet don’t fit the historical model of large companies with salaried employees: local services such as elder care, home repair, bookkeeping, music lessons and other services requiring background checks and verified, curated local references, with a reliable payment system for mutual protection.

Software as a service: Without trying to compete with the Microsoft gorilla, thousands of software engineers are starting up companies to offer unique, often niche, software functionality on a subscription basis. Whether they help customers use the cloud for customized data storage and retrieval, build the next Salesforce or Slack workplace platform, or design a consumer app for smartphones, they are the acorns in your backyard. Some will grow to become oak trees.

Reindustrialization and onshoring: The pandemic has taught America that we can no longer rely on the global supply chains that once seemed to provide the lowest-cost and most-efficient way to procure and assemble products. Many industries are already rethinking their offshoring strategies with an eye toward sourcing right here in the U.S. Most of these initiatives will be high-tech and highly automated — not low-wage American sweatshops trying to compete on labor costs with Vietnamese and Indonesians working for a fraction of our minimum wages. In the Midwest Rustbelt, reindustrialization could potentially be the single most important economic development of this decade.

Such facilities would be ideal candidates for Opportunity Zone investments for jurisdictions mapped for such designations. Investors are hungry to locate tax-advantaged capital-intensive businesses in these locations.

Robotics and automated delivery: Hundreds of startups are already working to perfect drones and driverless robots to deliver pizzas, prescriptions and all the other stuff that teleworkers and stay-at-homers now expect to arrive at their doorsteps. Whether the company in your locale actually builds the machines or just operates the delivery business, life will never be the same with all these little mechano-critters flittering around.

Robots also will continue to drive down the cost of manufacturing and providing services. It’s not just heavy industry: Robotic medical screening is just one example of services now provided by humans that will likely be supplemented (not replaced) by mechanized processes. Americans’ pandemic response has produced some ingenious solutions, such as applying the power of 3-D printing to providing face shields, and there are literally dozens of startups putting that same technology to work right now for other products and markets.

By now readers might be thinking, “This is all very interesting, but I am not a futurist and our government agency is not either. How do we connect with these experts, entrepreneurs and savvy investors?”

The good news is they are all around. You just need to know where to look. One place to start is the Angel Capital Association, the nationwide network of angel investment groups. It has a robust directory that is organized geographically to help locate local chapters. There are about 200 of them nationwide. If you want to find local startups that hard-nosed angels consider viable, start with the leaders of your local angel chapter. Most will happily take the time to chat with inquiring public officials about what’s happening in their backyard and help navigate the ecosystem.

There are plenty of other resources to support local startup ecosystems. In many states, for example, universities and local investment groups have formed alliances to foster technology transfer from the research community to the private economy. In my backyard, the University of California, Irvine has built out an impressive operation at the UCI Beall Center for Innovation and Entrepreneurship. It houses numerous angel investment activities, provides “wet labs” for biotech startups, and sponsors training for students and entrepreneurs in the skill sets they need to be successful in getting their idea from the founder’s brain to business profitability.

There also are numerous local and regional nonprofit organizations that support the angel networks, including at the important “exit stage” where the angels get rewarded for their risk-taking. In Orange County, for example, Octane supports the Southern California startup community with a “launchpad” incubator and high-profile conferences. Octane’s mission is to stimulate 20,000 new high-paying jobs by 2025 and 50,000 by 2030.

Another networking resource that local officials often overlook is a federal one: the Small Business Administration’s program for startup business development. The Small Business Development Network’s regional offices support local beehives like UCI’s innovation center and the Octane launchpad. Local angels typically donate many hours to support these SBA-funded activities, but too often local officials have neglected to meet up with the nearby SBA staff. Right now they are preoccupied with the flooded CARES Act business loan program, but once that is stabilized, somebody needs to break the ice.

So don’t wait for the phone to ring. Folks in this world are focused on business and savvy investments, not politics and government planning. Their instincts are to be helpful, but the outreach needs to start from the public sector. You’ll be amazed at what you can learn.

Governing's opinion columns reflect the views of their authors and not necessarily those of Governing's editors or management.

Girard Miller is the finance columnist for Governing. He can be reached at
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