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Industry leader explains ABCs of angel-backed companies

Published: 2013-12-02

Widely recognized industry leader John Huston explained the ABCs of “ABCs” — angel-backed companies — to graduate students in the Fisher Entrepreneurship Association (FEA) during a recent visit to the business school campus at The Ohio State University.

For example, how do angel investors and venture capitalists differ?

“The real difference is that venture capitalists invest other people’s money and angels are investing their own money,” said Huston, who formed USPrivatecompanies in 2000.

“‘When I refer to ‘ABCs,’ I’m really talking about companies where angels have invested. They may have VCs come in later, but rarely at the start. With my angel fund, we’ve invested in 43 companies and only three of those will become invested in early on by VCs. Usually, you can think of angels as the on-ramp to the venture capital superhighway.”

Huston formed USPrivatecompanies to provide equity to Ohio’s most promising entrepreneurs after a 30-year career in the banking industry. He also launched the first Ohio TechAngel Fund in 2004 and serves on the executive committee of the North Coast Angel Fund and as chairman emeritus for the Angel Capital Association. Huston was introduced to the student group inside Gerlach Hall by MBA Burouj Ajlouni, co-president of the Fisher Entrepreneurship Association.

“Many FEA members are aspiring entrepreneurs who will be seeking angel investors to fund their own ventures, and an opportunity to hear from someone like John is an invaluable experience for students,” said Ajlouni, whose organization provides opportunities for learning and networking through engagement with professionals in the field. “The students appreciated the firsthand knowledge on how to make their pitches to angel investors successful.”

“Engaging firsthand with that level of expertise is a critical component of our education."

Huston applied his expertise to a number of topics during the discussion, including the importance of considering more than just need and price when determining whether to invest in a company. Equally important factors are: impact on humanity (it’s easier to build interest in an innovative medical device than, for example, the most innovative bowling ball); behavior change (a great product might be a nonstarter if it requires fundamental changes to traditional behaviors); and sales per customer (a service such as cable television has a recurring revenue stream while a single, durable hammer might be passed down across generations).

Huston also emphasized the importance of the mindset and work ethic of those individuals behind an entrepreneurial idea. “I’m looking for passion, conviction and perseverance,” he said. “Everybody thinks it has to do with the deal, but it really has to do with the people.”