MSPs: Looking for an Angel Investor?

If only you had more time — or more cash — to build your business in 2010. Sure, you can reach out to a credit union or local bank for a line of credit. But I’m starting to hear from managed service providers (MSPs) who are mulling another path: Finding an angel investor. Smart move?

First, a quick definition (credit: Wikipedia):

An angel investor or angel (also known as a business angel or informal investor is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.

No doubt, the pace of investments in the managed services market is accelerating. Recent deals include:

• Spiceworks raising $16 million
• Quest Software acquiring PacketTrap
• High Street Technology Ventures, led by Gerard Kane, announcing plans to acquire MSP Services Network (MSPSN)
• iYogi, a remote support specialist, raising $15 million
• Peak 10 securing a $95 million credit facility
• Two VAR500 companies merging
• And venture capitalists evaluating a range of cloud investments

Tricky Conversation

I suspect the vast majority of MSPs are looking for smaller, more targeted financial options. President Obama is pushing banks to increase loans to small businesses. But Entrepreneur magazine notes the following:

“Overall, the country’s top 22 banks receiving capital injections from the U.S. government have decreased total lending to small business by $11.6 billion [since April 2009]. Even when the banks do lend, some business owners say they are being asked for more advantageous terms.”

If banks don’t open their vaults, where should an MSP turn next? Some folks are talking up angel investors and so-called friends of the family investments? You’ll find lots of related chatter out on Go4Funding, a “platform to bring entrepreneurs, business owners and investors (angel investors and venture capitalists) closer together.”

I must concede: Those steps make me nervous because I like the freedom of working with my business partner (Amy Katz) to call the shots on our own.

What’s Your Business Worth?

Meanwhile, several different advisors are striving to help MSPs understand corporate valuations (in other words: What’s your business actually worth?).

Martin Wolf Securities has advised solutions providers and technology companies for more than a decade. The company claims to have assisted more than 85 transactions since 1997.

Also of note: MSPAlliance Co-founder Charles Weaver has been building Weaver & Associates, “a boutique Mergers & Acquisitions international advisory firm specializing in the managed IT services industry.” Weaver is working with Scott & Scott (a law firm) on M&A workshops for the managed services industry.

Let me know which paths you consider as you size up your company’s financial needs for 2010 and beyond.