Angel investor looks for 'coachable' firms

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Catherine Mott had never heard of angel investors when a friend who worked in the venture capital sector suggested she launch an angel network in 2000.

At the time, she owned a consulting firm that helped small- and medium-sized banks establish investment divisions. But even during her 14-year career in brokerage and banking prior to becoming a consultant, Ms. Mott had not come across "angels" -- typically wealthy individuals who use their own money to finance high-risk, early-stage business ventures.

Catherine Mott
Job: Founder and chief executive, BlueTree cq Capital Group and BlueTree Allied Angels
Age: 56
Hometown: Greenville, Pa.; resides in Mercer.
Education: Bachelor in education, Edinboro University, 1976; master of education, Edinboro University, 1977; master of business administration, Youngstown State University, 1988.
Career: 1977-85: 10th grade English teacher, Greenville Area School District; 1985-87: account executive, McEwen & Associates, Greenville; 1988-90: investment sales, private banker and project coordinator, Peoples Bank of Western Pennsylvania, New Castle; 1991-93: assistant manager, regional banking center, PNC Bank, Pittsburgh; 1994-97: commercial loan officer, vice president, and senior vice president, First Western Bank, New Castle; 1997-99: senior vice president and executive division officer, First National Bank of Pennsylvania, Hermitage; 1999-2003: president and founder, Synergetic Sales Performance Group, Mercer; 2003: co-founded BlueTree Capital Group and BlueTree Allied Angels; 2008: bought out BlueTree co-founder and became sole owner.

After 18 months of research, including trips to tech hubs in Silicon Valley and Boston, Ms. Mott sold her consulting business and started BlueTree Capital Group and BlueTree Allied Angels.

To date, the Wexford business has invested $15 million and its current portfolio includes 24 ventures ranging from one developing an artificial lung device to a chain of casual restaurants. Since its inception, BlueTree's investor network has grown from eight to 48 individuals.

Ms. Mott, who in July became chair of the Angel Capital Association based in Kansas City, Mo., calls herself "an evangelist for the industry."

Though she spent eight years teaching 10th-grade English before pursuing her master's in business administration and a career in financial services, Ms. Mott always wanted to be an entrepreneur; she thought about opening her own export firm or flower shop franchise.

While shuttling between meetings in Pittsburgh recently, Ms. Mott stopped to chat over a sandwich and bottled water in the lobby at the Omni William Penn Hotel, Downtown.

Q: Had you invested in anything before you started BlueTree?

A: I had an opportunity to invest in a smart-card technology company that went bankrupt. That's classic angel investing.

Q: What's the difference between angel investors and venture capitalists?

A: We invest our own money; they invest institutional money. They invest in expansion and later; we invest in seed and early-stage so we get higher returns on investment because we're earlier in. We come in after friends and family and after incubator funding, and pre-venture capital.

Q: What does your network look for when you review business plans?

A: Most importantly, the entrepreneur has to be coachable because everybody doesn't know what they know. Many of them are great technologists but they never ran a business before. If they're not coachable, we walk away.

Also, a well-balanced management team. Or if it's too early for a well-balanced management team, we want a well-balanced group of advisers or board members.

There's that old adage in real estate: location, location, location. For this we want management, management, management. We like high gross margins and a large market niche. And we want the product or service ready for customers with one or two [early stage] customers at least.

Q: What's an average initial investment for BlueTree, and what piece of the company do you get?

A: About $250,000 to $500,000 per deal in the first round. And we like 20 to 30 percent equity when we invest.

Q: What about returns?

A: Our portfolio on average is generating 27 percent return on investment.

Q: How has the recession and slow economic recovery affected you?

A: 2007 was a peak year for angel investors, according to research by the University of New Hampshire. That year, $27 billion was invested; it dropped to $19.2 billion in 2008 and to $17.6 billion in 2009.

Here's what we did locally in 2009: We stayed focused on our portfolio companies and invested the lowest amount ever, $1.8 million plus $500,000 outside the region.

We focused on how to protect the companies we invested in. We had to lengthen the runway for them to handle the recession. We lost some investors, but we gained some, too.

In January 2010, it was like someone flipped on a light switch. By May, we had $2.5 million invested in new companies. And there's been a little follow-on funding. We're starting to look at new companies again, and we're very optimistic. We've exceeded all of last year in the first five months.

People are asking, "What's out there to invest in?" because they don't want to put it in stocks and bonds.

Q: Your portfolio leans heavily toward medical technology with some software and networking technology thrown in. How did restaurant chain Quaker Steak & Lube make the cut?

A: We're industry agnostic. Medical devices and information technology seem to be the bulk of our portfolio. We don't normally do restaurants, but one of our members was the chairman of Quaker Steak. They had nine locations [when we invested], and today they have 46.

It was the perfect angel deal for us. We supported a fellow investor. You veer off the beaten path, but we had a good reason to do so.

Q: Do you favor local investments?

A: Most angel networks prefer to invest in their own backyards within a two-hour driving range because it's so hands-on. We're not just putting money in; we're putting someone on the board of directors. We're advising, monitoring, and they're so early-stage, they need help.

And we like to drive by and see the lights on and cars in the parking lot. There's a sense of security you get from that.

Q: Describe the typical angel investor.

A: Someone mature in [his] understanding of various asset classes and various opportunities to invest. Someone who really likes the cutting edge and to be involved in the cutting edge.

Part of the thrill of this is the hunt for the perfect deal or the next FreeMarkets or Fore Systems [successful tech firms that started in Pittsburgh]. One investor says it's like creating a fantasy football team: creating a portfolio that can potentially go out of the ballpark.

There's also the aspect of doing good in your own neighborhood. If you're going to create new jobs, you like to be able to say it's right here.

Q: What inspired the name BlueTree?

A: My original partner and I couldn't agree on a name. We were driving down to see a consultant in Washington, D.C., who said, "Pick an animate or inanimate object with sticking quality."

My last company was Synergetic Sales Performance Group and it was too long. It didn't stick. We always used "SSPG." So my partner was looking at a blue spruce or something and said, "What about Blue Tree?"

Q: What do you do when you're not searching for the next big deal?

A: I exercise by running. I don't have time anymore for golf. But I want to balance my time with the things that are most important: my family, my friends and my church.

Joyce Gannon: or 412-263-1580.


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