In May, London-based fuel cell developer Intelligent Energy purchased, for an undisclosed sum estimated to exceed $10 million, what began life as a simple idea.

The concept was to use a tiny electronic device to strip hydrogen from fossil fuels to power fuel cells. It was nurtured from infancy to buyout with cobbled-together financing from a venture capital firm, contracts from government agencies and about $600,000 from an elite squad of former company execs, retirees and well-heeled investors commonly referred to as "angels."

A proposed state tax incentive aims to help boost the growth of just that kind of angel investing in New Mexico, where millions in private investor money has already helped many entrepreneurs get ideas off the ground.

Aptly named because they often come out of nowhere at a company's most vulnerable moment, angel investors are the largest provider of seed and startup capital to high-growth companies. They provided some $18.1 billion in business financing nationwide in 2003, says Jeffrey Sohl, director of the University of New Hampshire's Center for Venture Research.

That figure nearly matched the $18.2 billion invested during the same year by venture capital companies, which typically enter at a later stage.

And angel investors are on a roll.

By the end of the first half of this year, angels had already invested $12.4 billion in 27,500 companies.

That hasn't escaped the attention of officials in New Mexico, where a fledgling startup industry is driven by entrepreneurs struggling to find a commercial market for sometimes esoteric technology developed in the labs.

New Mexico Economic Development Secretary Rick Homans recently told a legislative committee that the Richardson administration will include a tax credit for angel investors in a package of proposed economic development incentives it will put before the Legislature.

If passed, the legislation would give qualified investors in a New Mexico corporation a 5 percent personal income tax break, to a maximum investment of $500,000, which amounts to a credit of up to $25,000.

Young companies "This state has a lot of young companies, so, hopefully, this becomes a way to get angel investments going," said Mike Orshan, director of the Economic Development Department's Office of Science and Technology.

The proposal would dovetail with an incentive package Richardson announced in September that includes tax holidays for technology companies.

Angel investments can sometimes be the deciding factor in a company's survival.

Once a startup's founders have maxed out their credit cards, taken a second mortgage and borrowed from every last brother-in-law, they're in the feared "valley of death" -- the gap in funding before a company can get an audience from venture capital firms, which want to see more proof of viability before they pony up cash.

And that's where lots of pre-revenue companies fail.

Nationwide, only a handful, 15 percent to be exact, of venture firms will consider seed-stage investments, which are typically less than $1 million.

Locally, a couple of venture capital companies, including Verge and Flywheel, do such deals. But the bulk of tiny startup investments are done by angels.

Key to survival "It's the first funding," says Ned Godshall, an angel investor, former Sandia National Laboratories scientist and CEO of MesoFuel. "MesoFuel wouldn't exist without that angel money."

Godshall has made angel investments in five companies, including MesoFuel and more recently Albuquerque solar panel developer Advent Solar.

He is also chairman of the board of a growing group of loosely organized investors in New Mexico operating under the banner of the New Mexico Private Investors, formed by stock-analyst-turned-investor George Richmond. Taking a cue from loosely organized groups of angel investors around the country, the local group has about 70 members around the state. Collectively, they have written about $2 million in checks to more than a dozen New Mexico companies in the last couple of years.

Recruiting angels In January, the group held a training conference based on a program designed by the nonprofit Kauffman Foundation and aimed at attracting more wealthy individuals to the angel fold. The group hopes to turn the seminar into an annual event.

"I have a lot of friends in Santa Fe who could write checks," said Richard Harding, an NMPI board member who is also a general partner in Silicon Valley-based venture firm IVF, which has investments in two New Mexico companies. "We'd like to get them engaged."

NMPI also holds regular dinner meetings during which entrepreneurs can present their plans to investors. And the group is building a screening committee that studies business plans, giving investors a head start in their own due diligence work.

"We want to be the place where our members can find high-quality investment opportunities that they can't find anywhere else," Harding said. "We want them to kiss a lot of frogs quickly to make sure there's a prince in there."

Besides his work with IVF, Harding in May joined 13 other angels in a $1.3 million seed funding round for Concise Logic, a University of New Mexico spinoff developing semiconductor design software.

Duds and home runs Angel investors are typically in a deal for a while -- four or five years is the norm. And, as in any investing, most expect a couple of home runs to make up for a majority of duds.

"Out of 10 deals, three or four would go under, three or four will limp along, but one to two are the ones that are going to hit," Sohl said, adding that most consider a 30 percent-to-40 percent annual return on their total investments to be a success.

Richmond, arguably one of the state's most prolific private investors, admits he's had to take a few writeoffs -- he was among several angels and two ventture capital firms that lost a total of $3.5 million when Internet copyright software developer Elisar Software shut its doors a year ago.

But it's not just about money, says angel investor Jarratt Applewhite, who has investments in several New Mexico companies, among them government information aggregator Samba, instrument maker ZTech and Advent Solar.

"I did it because I believe in the companies, but I also think the imperative to build a base of private equity for early-stage companies is hugely important," he said.

Angel investors say much of the satisfaction comes from using their business know-how to help inexperienced entrepreneurs. Furthermore, the list of investment and banking contacts brought in by investors can be of limitless value to a small company.

"It's really fun," Harding says.

"Helping these companies evolve is like giving birth. You can look in the rearview mirror later and see an imprint -- you're starting from scratch, helping build the first part of this critical infrastructure."