Business partners Tarek Makansi and Mark Evers, of the startup company Tempronics, needed capital to develop a system that could revolutionize the way the world cools things and generates electricity.They turned to Desert Angels, a Tucson-based non-profit organization of accredited investors who look for opportunities to invest in early stage companies.
Desert Angels serves as a forum for approximately 70 members, who invest individually from their personal funds. Since 2000, Desert Angel members have invested in excess of $13 million in more than 45 presenting companies ranging from the biosciences to specialized toys and automated paint.
In 2010 the group marked its most successful investment year with 13 early stage companies receiving more than $2.8 million from members. Eleven of those were Tucson businesses. Five were first-time investments for Desert Angels and the rest were follow-on investments in existing portfolio companies.
"We are one of the most active Angel groups in the Southwest by just about any metric," noted Curtis Gunn, chairman of the group. "We are providing a vital source of capital to companies in our local economy."
The idea is that providing capital to this critically important sector of the economy was most effective when individual investors banded together to share opportunities and experience. Across the nation, angel investors are the primary source of seed and early stage funding for startup companies.
"We had a really good experience with them," Makansi said of the Desert Angels. "We raised a fair amount of money from them.
"But it's more than just a check. They are prepared to give support over a long term. They know each other and trust each other, and they can bring forces together to bring a product forward," Makansi said. "It's very positive that Tucson has resources like the Desert Angels."
Makansi, founder and CEO of Tempronics, holds a doctorate in electrical engineering from the University of California at Berkeley. Evers, who has a bachelor's degree in marketing from the University of Arizona, serves as senior vice president and has a background in media and business development. The partners initially met some skepticism in their hunt for capital.
"Members of the Desert Angels were very critical in early steps of the process," Makansi recalled. But questions were answered, doubts remediated, and enough confidence generated that some members of the Desert Angels opted to invest.
Tempronics' process could spawn the world's first practical solid-state cooling and power generation devices. Their thermoelectric units would potentially replace rotating machines used today, including compressors, gas turbines, steam turbines and electrical generators.
Such machines are noisy, heavy and wear out from moving parts. Thermoelectric devices are solid-state chips that are lighter, silent, potentially more efficient and do not require environmentally damaging fluids such as Freon, Makansi said. "Thermoelectric devices have the potential to be lower cost, more reliable, lighter, smaller and more environmentally friendly."
Tempronics estimates the market opportunity for an efficient solid-state cooling and heat conversion device to be in excess of $100 billion.
A small group of Tucson-based private investors formed the Desert Angels in 2000. Since then, membership has grown and the organization has become one of the nation's leading angel investor groups.
Desert Angels reviews more than 300 applications per year as possible investments.
Representatives of those companies must successfully go through a rigorous process, Gunn said. A dozen or so members participate in the preliminary screening and those companies deemed qualified are invited to present to the entire membership.
The group meets monthly from September through June, usually at Hacienda del Sol Guest Ranch Resort. Presenters have a set time to give their pitch, including a sequence at the end that allows for questions from the audience.
There is more to the Desert Angels than presentations from entrepreneurial candidates.
Members often hear from nationally recognized speakers including successful entrepreneurs, venture capitalists and thought leaders in the angel investment community.
As the group grows, members also are increasingly involved in educational activities in the Tucson community. Activities include sponsoring the local presentation of the Kauffman Foundation's "Power of Angel Investing" seminar and assisting the UA's Eller College of Management and its McGuire Center for Entrepreneurship.
The Desert Angels is a charter member of the Angel Capital Association, the trade association of angel investment groups in North America.
Medipacs is another entrepreneurial group funded by Desert Angels. The company is developing the first non-mechanical infusion pump using a proprietary, expandable polymer. The Medipacs pump is designed to be wearable, programmable and disposable, allowing for greater accuracy, patient comfort and convenience at a lower cost.
The Medipacs proprietary polymer acts as a motor as it precisely expands, gradually displacing the drug out of a reservoir contained in a device smaller than a cell phone. The expansion of the polymer is controlled chemically or electrically at precise levels allowing for accurate drug delivery to patients.
Medipacs has secured its first patent and has seven additional U.S. and 28 international patent applications pending for covering the polymer material, the device and components and methods of use. Medipacs also has applied for several trademarks.
"Desert Angels enabled Medipacs to be in existence. They stepped up and provided a series of funding that allowed us to get past the bench screening. They were a terrific group to work with," said Medipacs CEO Mark McWilliams. "I've worked with a lot of Angel groups, but Desert Angels is an especially good group, a real class act."
The polymer yields the lowest possible cost for a precision pump mechanism because it replaces motors and mechanical drive systems found in current devices. The Medipacs system is simple and easy to assemble. It also is silent, lightweight and suitable for in-patient and outpatient applications.
"Our technology really allows us to do therapy that the existing hospital technology does not," he added. The company is moving into the final product designs. McWilliams estimates the infusion pump could benefit 18 million people in hospitals. The economic opportunity is estimated at $2 billion.
"It's vitally important to have groups like the Desert Angels," McWilliams added. "Members of this group are the most outstanding, smartest and fairest investors imaginable."
McWilliams singled out Desert Angel member and initial Angel organizer Harry George for praise. "He is a wonderful person, a wonderful investor and a truly exceptional guy. He understands how it all works."
Gunn said that the work that George and other members do for the community is vitally important. "The members of the Desert Angels are putting dollars to work to help foster and create the next crop of successful companies that will help grow the local economy and create more high-wage jobs.
"The Desert Angels is an important piece of the puzzle in terms of local and regional capital formation and economic development," Gunn said. "It is a privilege and honor to be working with a group of like-minded investors who want to give back to the local entrepreneurial community."
As a vibrant, growing organization, the group welcomes new members. The first step to get involved is contact Gunn at (520) 241-5137 to attend a dinner meeting. Find more information at www.desertangels.org.
Under federal law, only accredited investors may become members of angel investment groups, including the Desert Angels. Accredited investors are defined as individuals who have a net worth, or joint net worth with spouse, of at least $1 million; or individuals with annual income in excess of $200,000 if single, $300,000 if married.
"It's exciting to meet with an entrepreneur who has an idea, to sit down with that entrepreneur and work things out so that idea can become a going business," said Darryl Dobras, a member of Desert Angels and an entrepreneur who launched three companies on his own.
"You get addicted to the process," he said. But have no doubt, "such investing is very high risk."
For that reason, Dobras said he prefers to spread his interest across several investment opportunities. "Of 10 companies, four will drop by the wayside, and one might give you a return."
Investing capital in startup companies has always been an option, with or without the Desert Angels, said Dobras, who holds a bachelor's degree in economics. "But the Angels make it more formal, and you can rely upon the integrity of the group."