Why are Angels Forming and Joining Angel Groups?

November 27 2009 No Commented

Why are Angels Forming and Joining Angel Groups?

Angels have been investing in entrepreneurial ventures for centuries. But angels organized in groups are rather new. The first formal angel group (Band of Angels) was organized by Hans Severiens in Palo Alto, California in 1994. The rate of formation of angel groups has been an amazing phenomenon over the past decade. As we end this decade, more than 1000 angel groups have been formed in a large number of countries all over the world. Wow!

Angel groups come in many flavors. All screen and scrub deals together. Some groups pool funds and invest as a group by voting up or down on each company applicant (angel funds). In other models, each angel in the group decides whether or not to invest and how much s/he will invest for their own account (angel networks). Some angel groups are managed by the members (with or without administrative support) while other groups choose to hire an executive to manage the group. The difference between angel funds and VC funds is that decisions in angel funds are made by a vote of all investors (not by managers).

Angels join groups for many reasons: 

  • Angel groups do better deals than individual angels. The collective skills and experiences of 30 or more members can be effectively marshaled for quality due diligence, for deal structuring and for mentoring portfolio companies after investment.
  • Members of angel groups see more deals than individual angels. The group can be efficiently organized to manage considerable deal flow, providing members with a variety of quality deals for investment.
  • It is easy for entrepreneurs to find angel groups. Angel groups are highly visible (unlike solo angels) and cast a broad net for fundable companies.
  • Angel investors find camaraderie within a like-minded investor community.

 

In the past five years, these angel networks and funds have organized themselves into regional and national organizations (such as the Angel Association of New Zealand and US Angel Capital Association) with many interesting outcomes: (1) best practices are now available on all aspects of angel investing from member retention to deal terms to due diligence; (2)  regular meetings of angels and angel groups leaders for education, exchange of ideas and networking; (3) angel returns, especially from those in groups, are beginning to be measured and published; and (4) policy statements and advocacy positions are now available for national and regional governments.

It’s a GREAT time to be an angel. Find a group and jump in!

Bill Payne is the 2010 BNZ University of Auckland Business School Entrepreneur In Residence. www.billpayne.com