StepStone Angels won't be a fund, per se, but a membership-based group that brings together wealthy investors and slides promising companies their way for evaluation.
Angel investors typically bridge the gap between an early-stage company's initial funding from "friends and family" and venture capital funding obtained later.
"There is very little in the way of effective angel infrastructure" in Indiana, said Oscar Moralez, managing partner and co-founder of StepStone Business Partners.
Moralez is better known locally as founder of Indianapolis-based BioStorage Technologies, one of the world's largest privately held repositories for biological samples.
He co-founded StepStone with Steven F. Isenberg, an Indianapolis physician and an assistant professor of otolaryngology/head and neck surgery at the Indiana University School of Medicine.
Isenberg has his own entrepreneurial bent, which includes having co-founded Indianapolis-based MedInvent, the holder of patents on nasal irrigation device NasoNeb.
He and Moralez recently brought aboard Walter Niemczura, who in 1997 founded in Indianapolis the financial software firm NISYS, which he sold in 2005. Niemczura during much of the 1990s served as president of the city's Metropolitan Development Commission.
The three will have to toe a tight regulatory line. They will use their expertise to identify and investigate potential investment opportunities and coordinate the presentation to members yet not serve as an investment adviser.
The idea is that angels will further mitigate risk by applying their own expertise to further vet deals and decide whether to invest. Many likely to be attracted to the group as angels are from the medical field doctors and surgeons who will have expertise in life sciences.
"The collective intelligence of a group makes 50-percent better decisions," Niemczura said. "At the last meeting, we had several doctors in the room who started asking good questions."
Niemczura said he hopes to attract 50 members by the end of this year. According to a packet for prospective angels, members "will be expected to attend meetings, ask questions of presenting entrepreneurs, indicate serious interest in deals, participate in due diligence on potential investments, and to submit deals with which they are familiar."
StepStone developed a detailed, three-page questionnaire for member candidates. They're queried about their business experience and past investments.
"Not every potential angel is going to be a good fit for our group," Moralez said.
"These guys have to bring a lot to the table besides their capital resources," Niemczura said.
Besides active participation on deal assessments, angel members will pay a $2,500 annual membership fee. Each must have the ability to invest $25,000 to $100,000 each year.
Oddly enough, despite the nose dive of the economy and stock market, the timing for such a group might be opportune.
"They're tired of sending their money to Wall Street," Moralez said. "I think people want to take a little more control over their financial future."
Each investment will have a debt and an equity component, according to the packet for prospective angels. "We expect that initial investments in most early-stage companies will be made in the form of promissory notes convertible at the option of the holders into equity of the company," the material says.
The notes "likely will be of short duration with the intention of providing bridge financing to companies prior to their transition to more permanent or institutional financing."
StepStone principals will make their money from the annual membership fees and from fees charged for due diligence and deal negotiations.
They also will offer management consulting services to the upstart companies and take up to a 10-percent ownership in each company investment.
Among companies the group has reviewed so far are those in drug development, medical devices and even one firm in biofuels.
There's been a conspicuous lack of early-stage capital available for life sciences companies in the state, even less so than in the other hot tech sector-information technology.
In 2007, a group of 20 experienced executives and entrepreneurs, including Baker Hill partner Mark Hill and First Internet Bank Chairman David Becker, formed the angel fund HALO Capital Group to invest in IT upstarts.
"We don't have enough knowledgeable, active Indiana investors in life sciences and health care," said David Johnson, president and CEO of the state's life sciences industry group BioCrossroads.
That group created its own fund, the Indiana Seed Fund, which helps early-stage companies that can't yet qualify for venture funding. There are now eight companies in its portfolio, which has about $6 million in funding.
Johnson said the emergence of the StepStone angels is recognition of the promising life sciences landscape in Indiana.
Of course, it's not a field for casual investing, Johnson added, with many companies involved in emerging science, in shifting markets.