The concept of the angel investor group is taking hold across the country, with maybe 200 of these organizations now in existence. It’s still a fairly recent phenomenon in Western Mass., but a group called River Valley Investors (RVI) is rapidly making the term part of the local lexicon. Like other angel groups, RVI works to put entrepreneurs with ideas and early-stage companies in front of investors looking to put capital to work. By doing so, the group is contributing to economic-development efforts in the 413 area code.

“Boring, but profitable.”

That’s the phrase Paul Silva used on several occasions to describe the kinds of business ventures preferred by River Valley Investors, an angel investing group — this region’s first and now one of a few hundred across the country — that is somewhat quietly making a positive impact on this area and its economic-development activities.

“That’s a vastly overlooked sector,” joked Silva as he explained what ‘boring but profitable’ is, or, to be more precise, what it isn’t. Generally speaking, it’s not high-tech, or what he called “software and silicon,” a realm once preferred by many angel groups and venture capitalists.

Instead, it’s more-conservative types of businesses, ones that are usually mature, or at least “early stage,” said Silva, manager of RVI, a serial entrepreneur in his own right, and self-described “conductor of the orchestra” that now includes three dozen investors. The common denominator is generally lower risk, he continued. “We’re more Yankee than Bostonians.”

The terminology certainly applies to a venture called Pet Angel World Services, or PAWS, a company that provides veterinarians and clients with a complete range of pet death-care services that became part of the RVI portfolio earlier this year, said Silva, and also to Oxford Performance Materials, which provides everything from polymers for long-term human medical implant devices to critical components for the semiconductor manufacturing process to fuel cell components for the space shuttle. And it would apply to iiProperty, which provides Web-based real-estate property-management software for small and medium-sized landlords.

But it definitely wouldn’t capture the essence of dexrex, an Amherst-based startup venture that provides data-management services for instant messaging and mobile text-messaging services, said Silva, who, in explaining this addition to the portfolio, said simply, “there are exceptions to the rule.”

The financing provided to dexrex is an example of how RVI, founded in 2003, is contributing to economic-development efforts in the region, said Silva, noting that it is unlikely that the unique company, formed by partners and UMass graduates Derrick Lyman and Richard Tortora, would have come as far, and as quickly, as it has without the group’s support. And while there is a good chance the company may soon leave this market for Cambridge, RVI has played a lead role in keeping it in this area code — and creating several jobs in the process — for the past two years.

Overall, RVI, which makes investments averaging $250,000 to $500,000, but has made deals for more than $1 million, is closing what Silva and others have called a ‘capital gap’ in the region, and it has done so by providing economies of scale when it comes to linking entrepreneurs with badly needed funding. Through regular monthly meetings staged at the PeoplesBank Building in Holyoke, the group is exposing its members to a number of potential investment opportunities — most in that ‘boring, but profitable’ category. Meanwhile, it is also giving entrepreneurs a chance to tell their stories in an effective way and in a target-rich environment.

Thus far, the track record is solid, with two ventures recently selling and providing returns of 30% and 24%, respectively. That batting average won’t hold up, said Silva, noting that, traditionally, more angel investments lose money than make money, but the group envisions a winning record through sound, well-researched, and well-thought-out decisions.

Looking forward, Silva said RVI is looking to become more of a force in this region as it adds both investors and companies’ logos to the portfolio.

In this issue, BusinessWest takes an indepth look at the concept of the investor group, and how this one in particular is contributing to progress in the Pioneer Valley and well beyond.

Winging It

As he talked about RVI and its investors, Silva used the collective ‘we’ early and often.

When talking about the preponderance of advanced manufacturing companies in the portfolio, he said, “we like things.” Referring to one such company, Optical Alchemy, which creates high-performance, lightweight sensors for the unmanned aerial vehicle market and was added to the portfolio in 2005, he said, “we like widgets.” And when discussing iiProperty, added in 2007, he opined, “we like it because we understand the pain of real estate.”

But in reality, decisions are not really made as a group, but rather by individual investors within it, who are presented with opportunities at those regular monthly meetings and then decide themselves whether a venture is worthy of their time and capital.

RVI is essentially bringing a higher level of organization to the business of angel investing, said Silva, adding that its existence represents a nationwide trend toward the angel group model.

RVI’s nucleus is a core group of initial members, including business leaders such as John Davis, Bill Lyons, Glenn Hanson, Joe Cambi, Joseph Steig, Paul Gelinas, and others, who had been and still are involved in various aspects of economic development in the region, Silva said. “They’re entrepreneurs and successful businessmen and women themselves, and they know what it’s like to build things.

“They said, ‘we’ve been hearing about this angel-group thing,’ and wondered if they should try it in Springfield,” he continued. “At that time, there was just a smattering of angel groups in the country, maybe a few dozen, but they were growing in popularity because there was a clear need and the concept made a good deal of sense.”

This need had arisen from a change in focus among most venture-capital groups, Silva explained, noting that VCs that had traditionally funded early-stage companies have essentially moved on, or “upstream” to larger ventures, leaving that capital gap he mentioned.

“Young companies were dying on the vine,” he said, “and so professional angel groups were able to step into the breach. When the founders saw all the success that groups had in other parts of the country, they said, ‘why not Springfield?’”

There are now seven angel groups operating inside Route 128, another in Worcester, and the one in Springfield, said Silva, who came onboard in 2004 and brings a diverse background to his current role.

An entrepreneur, he’s started a number of ventures, including a company called All In Play, which produces video games for the blind. He’s also become a student of the angel-group movement, and an astute evaluator of the qualities necessary to qualify an entrepreneur for some of RVI’s precious time.

Explaining how the process works, Silva said a large part of his job description involves helping to find deals and screening candidates. There are hundreds of opportunities that come before him, and he chooses only a handful for each monthly meeting.

Entrepreneurs make a 10-minute presentation on their business, and they are then grilled by the angels. “We ask the hard questions,” said Silva, again using the first-person plural. From there, individual investors will decide amongst themselves whether an opportunity is worthy of some extensive due diligence, he continued, and if that research identifies what would be deemed a solid investment, angels are invited to take part.

The group, and the process it follows, is yielding dividends for the individual entrepreneurs and the region as a whole, said Paul Doherty, another of the founding angel investors and a principal with the Springfield-based law firm Doherty Wallace Pillsbury & Murphy. He told BusinessWest that 15 years ago, when he was chair of the board of the Springfield Chamber of Commerce, he recognized, as others did, there was indeed a ‘capital gap’ in the region, and he helped formulate ways to address it.

One was the creation of MassVentures, a venture-capital group headed by Tripp Peake that succeeded in helping to close that gap. “But venture capital groups are traditionally very conservative,” said Doherty, “and they don’t do many too deals.”

So attention was then focused on the local angel community, which, until the formation of RVI, was mostly individuals, almost all of them entrepreneurs themselves, who would find and act upon deals themselves. What RVI has done is to add a large, much-needed layer of organization and efficiency to the process, said Doherty, who has taken part in several of the deals that have expanded the group’s portfolio.

“It’s terrific for the entrepreneurs and for the angel investors themselves,” he said. “People can pick and choose which deals to take part in, and business owners get some valuable experience in presenting their case and making a pitch for capital.”

Getting Down to Business

As he talked about the portfolio and how companies get added to it, Silva said it features diversity, some local companies (he’d like there to be more), and is dominated by that ‘boring, but profitable’ quality, with only about 20% of the companies in the broad tech sector, a statistic that reflects the region.

“An angel group tends to reflect the industries of the region the group of angels comes from, because you invest in what you know,” he said, adding that most all of RVI’s members have a deep commitment to Western Mass. and want to help entrepreneurs here, even if it sometimes means settling for a lower return on their investment.

Selecting a few companies in the portfolio as representative of what the group and individual investors are looking for, he mentioned PAWS, now based in Wilbraham. This is a venture that has consolidated several pet death-care service providers, and it really caught the attention of group member Glenn Hanson, who now serves as CEO.

“It’s a solid company meeting a real need,” Silva explained. “There is great growth potential there.”

Optical Alchemy is another good example of a solid, relatively low-risk investment opportunity that appealed to many members and represents RVI’s “sweet spot,” he said.

“They make housings for very fancy cameras that go on unmanned aircraft like predator drones,” he explained. “They started this five years ago when this industry was just starting to gain some momentum, but they said, ‘this unmanned aerial thing is really going to take off.’ They developed products that are one-10th the weight and one-fifth the cost of what was on the market; it’s so dramatically cheaper and lighter that you can make a class of vehicles that you couldn’t before.”

Oxford Performance Materials, a company that was recently sold, yielding a 24% internal rate of return, is still another example of a low-risk venture. “It’s an advanced materials company — that’s not exactly ‘boring but profitable,’ but it’s more boring than many angel groups will look at.

“They basically found a fancy plastic that Dupont had no use for; they got the rights to it, and then they started making all these great applications for it,” said Silva. “That 24% return was a little less than we were looking for, but it was a lot better than what the stock market was doing at the time we sold it [last fall]; September changed our perspective on a lot of things.”

He told BusinessWest that dexrex is that exception to the rule, adding that it was essentially a startup that falls into the broad category of technology. It was started by Lyman and Tortola in 2005 while they were still students at UMass, and was created to meet what was then an unmet need — to help people (and eventually businesses) save and manage their IM and text messages.

The raw startup didn’t fit the general RVI description, but it did catch the attention of many investors.

Lyman told BusinessWest there was a good deal of serendipity involved with his company eventually becoming a key addition to RVI’s portfolio.

Indeed, he and Tortora were late getting their entry in for an executive-summary competition staged as part of the Entrepreneurship Initiative at UMass, and disqualified. But they showed up anyway, and made an impromptu pitch to Hanson, who happened to be one of the judges for the event. He was impressed enough to help get the partners on the schedule for one of the monthly meetings, and, to put it mildly, they made the most of that opportunity.

The company was first given some seed-stage money by Hanson and others to advance their concept, and it was later awarded some early-stage funding to take the business to the proverbial next level. Both infusions were in the form of equity funding, as nearly all RVI’s investments are, and they represent a sizeable stake in the company, maybe 30%, said Lyman, but the assistance has been invaluable in taking the company to where it is today.

As for the future, dexrex may be relocating to Cambridge, where it now has a second office, said Lyman, but it might stay in the Valley if the opportunity presents itself.

“We’re looking hard at Cambridge, primarily because of the proximity of financial firms and technology firms that we do business with, and also because of the proximity to a number of colleges that we could recruit from,” Lyman explained. “But nothing is set in stone; most of us really do like Western Mass. It’s a good working environment, and it has the five-minute commute instead of the two-hour commute. There are many advantages to doing business from here.”

While losing dexrex to Eastern Mass. would be a loss for the region, the bigger story is that RVI helped get the company off the ground, and it helped bring several jobs to the region, said Silva, adding that he hopes, and expects, that this script will be followed with many more companies in the future.

On-the-money Analysis

Summing up his involvement with RVI and his outlook on the need to infuse capital into the region’s business community, Doherty said, “my heart goes out to entrepreneurs; they make it work, but it’s definitely not easy.”

The region’s first angel-investing group is making it somewhat easier, he continued, by closing the capital gap and enabling business owners to state their cases in front of several potential investors at the same time.

Time will tell just how big a force the group can become when it comes to creating and retaining jobs, but its impact is already being felt, and in a number of ways.

Essentially, it is connecting entrepreneurs with angel investors, and the results have been heavenly, thanks in large part to that focus on ‘boring, but profitable.’

George O’Brien can be reached at obrien@businesswest.com

For more information on Rivervalley investors: www.rivervalleyinvestors.com  Angel Catalyst: www.angelcatalyst.com