Eighteen months ago, Davy Aker wouldn't have dared share with anyone an idea he and a couple buddies came up with to bring consumer loyalty to the Internet via Moolah.com, best described as a "Year 2000 version of S&H Green Stamps." But when an acquaintance introduced the hot-wired, 36-year-old entrepreneur to the clandestine universe of San Diego’s angel-investor community, his view of the business world — and how to navigate through its frequent twists and turns — changed forever.

"Oh, I was completely protective of the concept," Aker recalls of the two months they sat on a brainstorm to develop a kind of debit card that Internet shoppers would use to gain price breaks at numerous Web sites brought together in a so-called "affiliate network" under the banner of Moolah.com. Aker's entrepreneurial tutelage at the hands of these private investors, known not always willingly as "angels," delivered one major body blow of an epiphany.

"The biggest lesson I learned was, don’t be attached to anything, because it’s going to change," he says without the slightest glint of remorse. "What it comes down to is, we’re guided by fear — but you can learn to put it in its proper place."

And this from a former consumer-packaging whiz who sold his home and spent a year on the road pitching his idea to would-be merchants and investors — and who has yet to see a dime of angel money.

So who are these mysterious angels anyway, and what’s it take to pull down a cool million or so in private funding from them for your idea, which undoubtedly is the next Yahoo or Gateway? Well, they're guys — yes, mostly white males, many over 50, and all financially secure from earlier entrepreneurial successes — who eat, sleep and drink business. They seek the buzz of competition as much in the board room as on the golf links. Even more, they love being privy to the latest widget, business model or cure for cancer.

Not surprisingly, many live in eye-poppingly spectacular homes that overlook the Pacific and some of North County's glitziest country clubs and serve as Mission Control for many a wheeling-dealing angel. Angels, for the most part, cherish their privacy — knowing that even the solitary speaking engagement or news clip will swell their "in" baskets with yet more business plans from wannabe Goliaths of industry.

Yet, some — like Bob Bingham, Bill Payne, Joe Sullivan and Vern Yates — have emerged from the shadows as champions of an evolution among angels, an as-yet-unproven hunch that angels united can accomplish more than angels working solo. They also know the value of a little publicity when you’re trying to raise capital for start-up companies that are the saplings of future economic growth in San Diego, a burgeoning technology mecca that of late has experienced an unprecedented influx of equity capital from private investors and their cash-flush professional counterparts in the venture capital game.

John Busch, former chief credit officer and general counsel for Silicon Valley Bank who now directs UCSD Connect's Springboard program that links unpolished start-ups with angels, says this joining of forces is unique to the blossoming business environment here. "I spent five years in Silicon Valley, and there's a difference in culture in San Diego," explains Busch, a part-time angel himself. "Here, there's a stronger culture of 'let's build more companies,' 'let's help out,' 'if we make the pie bigger, everybody's better off.' That's what makes Springboard work. . . . These are busy people, some working full-time, and these guys give up a morning of their time to help some company they've never heard of. But they still do it."

To neophyte entrepreneurs — many fresh-faced enough to be their grandchildren — angels enjoy imparting wisdom gained from numerous highs and lows in their respective and diverse fields. Angels are as different as fingerprints, but they sound one clear warning to all who would come before them asking for a financial handout: Know your market, know yourself. And it doesn’t hurt to have a management team stacked with Einsteins who can execute.

"The mantra of the day is angel investing is a team sport, and it’s very true," says Bingham, who at age 33 ranks among the youngest of San Diego’s growing population of angels. "If you saw the best deal in the world, you'd be a complete idiot to put your entire life savings into that deal. I don’t care if it’s the cure for cancer, and every expert says it’s right.

"Hey, everybody is fairly sophisticated, has their asset-allocation plan done and municipal bonds on the safe side. What angels do fits in the extreme risk category, where their broker is telling them, 'What the hell are you doing this for?! Totally irrational!' That's where angel investors are in the scale of things."

The U.S. Small Business Administration estimated in 1996 — guessed, really — that some 250,000 angels nationwide were investing $20 billion in about 30,000 private companies annually. Due to their predominantly quiet nature, angels and their activities are notoriously tough to track, but it is widely believed that angels invest roughly twice as much as institutional venture capitalists. According to the National Venture Capital Association, venture capital firms last year invested a record $48.3 billion in more than 3,600 companies, two-thirds of which were Internet-related. Investments in Southern California companies more than doubled to $3.9 billion, the NVCA found.

Says Springboard's Busch: "If you go back four years or so, one $2 million transaction was great, and you'd have a couple of VCs working together. Now, they want to do $4 million, $5 million, even $10 million deals on their own. So for the smaller transaction, a little vacuum has opened up. At the same time, more and more individuals are coming out of the Qualcomms and Gateways, the IPivots and on down the list with incredible wealth and experience, ready to do something else."

It is in this funding gap where angels play a vital role, says Joe Sullivan, a 20-year veteran of the angel world and prime architect behind the newly organized Aztec Venture Network, a formalized group of 30 local angels who have committed $100,000 each to an investment pool they'll draw from to help start-ups in the $500,000 to $1 million range. Members decide by a two-thirds vote which companies to back.

"There's always been a gap (in funding)," Sullivan says. "In the olden days, meaning two or three years ago, it was pretty typical in San Diego that start-up companies could hope to raise $500,000 to $1 million from individual angels, and the typical venture-capital firms were doing investments of $3 million-plus. I’m now seeing start-ups actually being able to raise $1 million or more from individuals, while the institutional firms aren’t interested in looking at anything less than $5 million."

Bill Payne, another long-time angel investor and Aztec participant, acknowledges the group's model is far from proven, particularly whether the vote requirement will stymie action. "I think that’s the thing that’s always scared us," Payne says. "So if you ask us in six months and we still only have one or two investments, then I think we will not have been very successful."

Sanford Ehrlich, executive director of San Diego State University's Entrepreneurial Management Center (itself in existence largely through the generosity of private donors like Sullivan, Class of '67), says the emergence of angel networks like Aztec Venture comes not only in response to the widening funding gap between angels and VCs but at a time when stock market jitters have many private investors scratching their heads.

"They're really trying to organize a group of angels that looks at deals on a collaborative basis so that everyone is not out there flying on their own," Ehrlich says.

Since its founding four months ago, the Aztec Venture Network has reviewed the business plans of 100 start-ups, held informal meetings with 20 of them, and invited three to make their pitch before the general membership. The first to do so, a local Web merchandising venture named CashPile, also became the network's first investment.

Phil Trubey, who in 1994 co-founded with his wife the company that became Websense, a wildly successful developer of software that monitors Internet use for companies and schools, became an angel after that experience. He hooked up with CashPile first as an adviser, then an angel, and finally became CEO. It’s a role that leaves little time now for angel activities.

"Frankly, it’s unusual for somebody with a lot of money to want to become CEO, because it takes a lot of work," Trubey acknowledges. "And it’s not like I need the money. But one thing I realized was that the opportunity at CashPile was just huge. While Websense was a very good company and I made money from it — I think market cap these days is around $600 million — the market cap potential at CashPile is 10 times as big."

CashPile's Web site currently is a fairly run-of-the-mill information clearinghouse on revenue-sharing programs, but Trubey and guys like Sullivan hint at a "brand-new product-type service" that is under development and scheduled for a fall unveiling. "It'll be pretty exciting," is all Trubey will say.

Along with fellow angel Vern Yates, Trubey also is an investor in Vectron Inc., a private firm that has created a quarter-million-dollar piece of equipment that automatically inspects circuit boards for defects and misaligned components prior to completion. "That came through interaction with Vern," the 36-year-old Trubey says. "A lot of angel investments come from personal contacts in general. I also like Vectron specifically because it’s not involved in the Internet. It was a way to diversify away from my thing."

Yates, coordinator of the San Diego Band of Angels, is a thrice-retired corporate honcho who served as chief executive of Primary Access for three years beginning in 1989. Six years later, Santa Clara-based 3Com acquired the Internet company in a $180 million stock deal. The amiable Yates claims to be retired now and in no mood to return to full-time work. His wife, he says with a chuckle, thinks otherwise.

Indeed, Yates seems to have a full plate. He's a major investor and chairman of Vectron and an angel for nine other companies — some as a passive investor, others more hands-on. He participates with friends like Payne in the Chairmen's RoundTable, a group of past and present CEOs who help fledgling entrepreneurs through the rocky early stages of development, including the formation of boards of directors. And he offers his expertise to UCSD Connect.

Still, Yates insists, "I don’t consider myself in business. I will help people who ask for help, and I end up really giving a lot of free help. It’s often not tied to any business transaction at all. I think in all of us there's a belief that we’ve been fortunate, we’ve had a good experience, and I think there's a payback."

Yates was in on the ground floor with three members of the local Band of Angels' spectacular first venture, some early backing of a private Internet network firm known as Sandpiper Networks. Last October, San Francisco-based Digital Island acquired Sandpiper, providing investors with their so-called "home run." Two other companies he's invested in are about to be sold.

"Not a bad way to start," recalls Doug Wall, a local private investor, executive vice president of start-up helper, Alitum Inc. and the man Yates credits with the idea of forming the local band of angels. "It was our first deal, and ended up being a 100 to one return."

Hoping for more of the same, Yates has been talking with another group in Orange County known as the Tech Coast Angels about a possible merger. Although discussions are preliminary, Yates believes joining forces would have its advantages. "We would have a bigger group that could aggregate more money per deal, and we'd also see more deals," he reasons.

The move could also help sidestep a possible copyright spat with the Silicon Valley Band of Angels, which apparently has been grumbling about possible copyright infringement over use of the "Band of Angels" moniker. Odd, since a Michigan greeting card company owns the domain name "bandofangels.com."

One page of the Web site proclaims: "Do you like our domain? So do we!!! We have had a lot of interest in our domain name. We are NOT interested in selling. We are happy with it. Thanks for your interest, but it is not available."

Contacted by e-mail in Michigan, Band of Angels company President Cynthia Kidder said she was approached by "a group out of Stanford" but was "shocked" when they offered nothing for it. "It was rather a shame," Kidder wrote, "because I would have converted at that time to bandofangelspress.com but am too stubborn to do so without financial compensation."

So now, the hotshots up north are stuck with an as-yet unconstructed site under the awkward domain bandangels.com.

The Learning Cliff

Angels often are confronted by failure, but the good ones learn from those mistakes.

For brash guys like Bingham, talking about one's investment is no big deal, save for those in companies currently in "stealth" mode. Since his success with SimpleNet, Bingham has worked 12 angel deals and sits on six boards. Known perhaps most widely as the "lounge lizard" chairman of the iLounge conference in March, Bingham stumbled with his first angel investment, a "sizable" multimillion-dollar contribution to Kablink, a password-protected Web site that stored customers' digital photo albums. Funding dried up, and Kablink is kaput.

Lesson learned? "Focus!" he says. "We had a really smart team, but together they were a think tank. You don’t always bet on smart people. You've got to bet on smart people who can at least, well, move. You need to go out and get the partnerships done, and in order to get funding you've got to hit the milestones. If you don’t hit the milestones, then bad things happen — like your company closes down. So I tried to swing for the fences and muffed my first attempt. Hey, you can’t win the lottery unless you buy a ticket."

But even angels have their dark alleys — and most interviewed pointed squarely at the biotech/pharmaceutical industry. "Don't understand it," Payne says with a head shake. "Some things I pretend to understand. With biotechs, I don’t even pretend," Sullivan concedes. Among Bingham's investments in TheGolfer.com, MIVA Corp. and RealAge, yes!, there sits a life-science company. Which one? "I can’t even tell you what it is," he says. Oh, stealth mode, eh? "No, I just can’t remember what the name is. It’s inevitable that I forget some of this stuff."

But they were in harmony with one thing biotech: "Talk to Don Grimm."

Grimm, the former CEO of hugely successful Hybritech, never needed angel funding in his executive days. A previous stint at behemoth Eli Lilly saw to that. But his experience running pharmaceutical products through the circuitous path of FDA approval and mass production has initiated many a brilliant scientist who lack the ability to lead and think like a businesss warrior.

"If push came to shove, it would be easy to argue that the biggest value for all of us is helping people not make bad decisions, because with experience in any field of work comes a broader sense of the implications of decisions," the 58-year-old Grimm says. "Younger people don’t have that. Not because they're not smart — they're just naive."

Whether investing in biotechs is any riskier than wagering on software companies, Grimm likes what his friend and one of San Diego’s philanthropic towers, software entrepreneur Peter Preuss, has to say on the matter. Preuss is one of the so-called "archangels" in town to whom only the most promising of rising entrepreneurs gain an audience — and then only through "filters."

"Peter said the big issue with biotech is, do you make it? If you know you can make it, and it’s marketed to a specific disease, you can sell it," Grimm explains. "Software is just the opposite. He said we know we can build software. What we don’t know is, after we build it, will anybody buy it? . . . You don’t know if someone is going to buy or engineer around your software. I mean, there are a lot of software companies that have gone down the toilet as well (as biotechs). You just never hear about them."

When told that some angels have been compared to grandfathers, Grimm laughed. "Grandfather. Yeah, I like that. I’ve never heard that. I’m going to start using that. The other good thing about being a grandfather is you don’t have to keep the kids forever. You can babysit and then give the kids back."

The comparison makes 30-something angels like Bingham squirm.

"I don’t think age is relevant," he reasons, before tossing in a playful jest for the razzing he gets. "I think I’m just a little bit more . . . um . . . ignorant? They certainly have the experience, and I’m sure when I get to the advanced age they are I’ll be just as intelligent as they are."

It’s that chest-beating bravado that a young entrepreneur like Davy Aker feels churning inside since he's mingled with the angels. Even though Moolah.com floats in "suspension" with less than half the financial commitments necessary to complete his first round, Aker fears not. "I just had lunch with an angel. This has been the most incredible experience. I’ve met some of the most exciting people in town. Like they say, once you’re involved in the angel community, you’re in it for the long haul.