GV-PAN IS FIRST VENTURE CAPITAL SOURCE FOR REGION

04/01/ 2004

Northeast Pennsylvania Business Journal

Vol. 19, No. 5

Pg. 22

They're called "angel investors" and, for some companies looking to start or expand operations in northeastern Pennsylvania, they truly appear to be heaven-sent.

Over the last few years, the Great Valley Pennsylvania Angel Network (GV-PAN) has been quietly supporting regional entrepreneurial efforts by providing necessary start-up and venture capital.

The network is gaining momentum. Recently, two more startup companies received financial support from GV-PAN.

"The funding we received from the angel investors meant life or death for us. It was that important," said Douglas L. Batzel, president of Galaxy Manufacturing Co., a Moosic firm that makes powered industrial brushes. "Without them, we'd be a Mom-and-Pop operation working out of my basement."

GV-PAN funding allowed Galaxy, a small existing firm, to grow from four employees to a dozen. By the end of the year, Galaxy will employ about two dozen people, Batzel said.

And that is how the angel network is supposed to work.

"There are many entrepreneurs in northeastern Pennsylvania who have great ideas and want to start their own businesses, but the funding is not always available," said Christopher J. Haran, CEO of the Great Valley Technology Institute, which coordinates GV-PAN. "It can be difficult in some cases for startup firms to get a loan from a financial institution. Or, some of these projects are too costly to be funded by individuals, families, and friends."

That's where the angels come in.

"We have a group of about 30 affiliated investors who are willing to provide early-stage financing to regional start-up businesses," explained Ken Krogulski, president of Berkshire Asset Management and GV-PAN chairman. "The Technology Alliance receives business plans all the time, so a special committee reviews these plans and selects the ones that could be presented to the Angel Network.

GV-PAN members meet on a regular basis - usually over dinner - to look at the business plans recommended by the institute's committee.

"Each member of GV-PAN makes his or her own investment decisions," Krogulski said. "These are all accredited investors who can judge their own comfort levels with specific projects. One person can invest, 10 people can invest, or no one can invest. It is entirely up to the angel investor."

Each GV-PAN deal is a unique structure. Companies and investors agree on how the initial investment will be paid back, the timetable of the repayment, and other terms.

Galaxy Manufacturing's Batzel said a handful of angels and a corporation invested in his company in fall 2003.

Using a proprietary automated process, Galaxy Manufacturing makes brushes that polish jewelry remove rust and excess metal from parts, clean the inside of oil and gas pipelines, and more. The smallest brush has a diameter of one inch; the largest to date has a diameter of 15 inches.

Douglas Batzel and his partner, vice president of operations Lee Batzel, first contacted Ben Franklin Technology Partners, a statewide network that brings together people, technology, and ideas to serve as a catalyst for economic growth and prosperity.

The Ben Franklin group provided funding and assistance - and suggested Batzel contact Haran at the Great Valley Technology Institute. After some initial discussions, the Batzels drove to Hazleton during a hurricane to meet with angel investors.

"We made a presentation of who we are and where we're going," Doug Batzel recalled. "They had an interest and they asked questions during the meeting. They also came up to the plant, met with us, and saw what we were doing. We've had regular meetings since."

While the funding is critical for Galaxy's operations, it is not "a free ride," Batzel said.

"We're not on the public dole. We have to pay back Ben Franklin. The angel investors will either get paid back or get stock in the company," he explained, adding that other angels are now interested in his company.

"Galaxy Manufacturing clearly fits the profile of a technology company looking to grow its product in northeastern Pennsylvania. It was a natural fit for GV-PAN investors," noted Bill Scranton, co-chairman of the Great Valley Technology Alliance board of directors.

The second firm, which is currently unnamed, is looking at moving from research and development to production at a northeastern Pennsylvania site.

The Great Valley Technology Institute created GV-PAN, in part because of a recommendation in the Battelle Memorial Institute study, which was commissioned by the economic development organizations of Wilkes-Barre, Hazleton, and Scranton to better understand and address the structural obstacles which must be overcome in order for the region to make the transition to the 21st century economy.

The Battelle Institute report identified several critical weaknesses that, if left unaddressed, would continue to hamper the region's ability to attract and retain talented people and technology-focused investment, including a non-entrepreneurial business climate, a lack of local financial support for entrepreneurs, lack of a major research-driven educational institution in the region, and a lack of networking between the region's existing technology-based businesses and its colleges and universities.

"The Battelle report was an eye-opener. It led to the creation of not only the Great Valley Technology Alliance and the Institute, but also other initiatives, like GV-PAN," Haran said.

The northeastern Pennsylvania-based GV-PAN group is also connected to various other angel investor networks throughout the state, and is now a member of the statewide PAN (Pennsylvania Angel Network).

Locally, Haran expects the Great Valley Pennsylvania Angel Network to expand, both in angel investors and companies that receive funding.