MILWAUKEE — Before a technology entrepreneur can raise the seed capital he needs to fuel his rapidly growing business, he needs to identify one or more individuals who are legally allowed to make angel investments.
This is not an easy thing to do. But fortunately for southeastern Wisconsin’s tech community, Peter M. Skanavis is doing everything he can to encourage those who are wealthy enough to make angel investments to actually take the plunge and put their money to work.
Skanavis’s willingness to support Wisconsin’s high-tech entrepreneurs is even more remarkable when one considers his background.
A Greek immigrant, Skanavis arrived in the United States when he was just seventeen years old. “I know,” Skanavis joked. “I should be in the restaurant business.” Instead of selling gyros, Skanavis studied industrial engineering at the University of Wisconsin — Milwaukee, then took a job at the Miller Brewing Company.
When a round of layoffs put Skanavis back on the job market, he noticed that Wisconsin real estate agents were charging home sellers a six percent commission to sell their houses. Believing that this figure was too high, Skanavis decided to start his own real estate company, called Homeowners Concept, and charge a commission of between one and a half and two percent.
Skanavis’s real estate business was so successful that he began to look for other things to do with his money. He invested in the stock market, and he made a couple of investments in emerging high-growth companies. But the amount of time required to do research on each new potential investment was considerable.
In October, 2000 Skanavis saw an article about a new angel investment group, called Silicon Pastures, that was forming in Milwaukee. By teaming up, potential angels would be able to share their research and look at more good deals.
The Legal Definition of an Angel
Regulation D of the Securities Act of 1933, potential angel investors must have a net worth in excess of $1 million, not including their primary residence. Alternatively, potential angels may have an income exceeding $200,000 in each of the two most recent years, or a joint income with a spouse exceeding $300,000 and a reasonable expectation of having the same income level in the current year.
Two of the high-risk companies Skanavis invested in have already become worthless. But another, Town Bankshares, Limited, is about to experience a $41 million liquidity event, (assuming the Federal Reserve approves the transaction.)
The amount Skanavis expects to receive from the Town Bankshares acquisition is eight times greater than the amount of his original investment. In addition to paying Skanavis back, the $41 million liquidity event will more than compensate him for the two angel investments which have gone under, and give him increased optimism about his outstanding investments.
Skanavis believes that this is the way angel investing should work. “If you hit one out of five, you should be good,” he said. “The one should make more than the other four that fell apart, and go even further.”
He is proud of his angel investing, and he hopes to encourage more high-net-worth individuals to become angels. “If we could get 20 or 30 angel investors together in a group, and hire a research analyst, we could get some good deals,” Skanavis said. “The valuations have come down.”
Skanavis is also proud of the impact that angel investing has on local communities. As a fellow entrepreneur, Skanavis knows first-hand how difficult it is for entrepreneurs to raise the capital they need to expand and to pay their monthly bills. Angel investors help their local economy by helping entrepreneurs create new jobs. “I want to help out,” Skanavis said.
Skanavis believes that many of Wisconsin’s wealthiest citizens don’t consider putting their money into angel investments. But he believes that high-risk investments are necessary in order for communities to thrive. “Take a million and do some of this,” Skanavis said. “Use your expertise to help someone, and to help the local economy. As these companies grow, you have a piece of them, and you are doing your civic duty.”
Cash gifts to philanthropic organizations have traditionally been rewarded with recognition at social events and with generous tax deductions. Recently, the state of Wisconsin decided to grant tax credits to those individuals who decided to contribute to their communities by making angel investments in high-risk, high-growth businesses.
For those who meet the legal requirements for these high-risk endeavors, Skanavis has a message:
“Do your civic duty.”
The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.