Solo Angel Investing Versus Joining a Group

June 30 2010 No Commented

Solo Angel Investing Versus Joining a Group

I was a solo angel investor from 1980 until 2000 and made a significant fraction of my 52 angel investments during that period.  Solo angel investing is just plain hard work.  I found that, as a solo angel, it was difficult to complete adequate due diligence and very time-consuming to provide sufficient mentoring to portfolio companies.  Furthermore, soliciting financial investment from other accredited investors was limited to those in my personal network.

Shortly after joining my first angel group in 2000, I decided that all future angel investments would be made through angel groups.  Here are some of the reasons:

  • Angel groups see lots of applications for funding coming over the transom.  High deal flow, alone, is a great reason to join an angel organization.
  • When due diligence is divided among a committee of 4-6 investors, it is much less daunting.  Statistics suggest that angels that do a minimum of 60 hours of due diligence (in sum among the committee members) achieve seven times the returns as angels who spend less than 20 hours reviewing deals.
  • Groups of 30-50 angels can usually find a member with expertise in almost any business sector.  These members can be very helpful, both in due diligence of target companies and in mentoring companies after investment.
  • Angels in groups are all expected to pitch in and help do the work of the organization.  But, with 30 or more sets of hands, individual can pick and choose among the many chores of the organization and are not burdened with doing all the various jobs of a solo angel.
  • Angels investing with groups can more easily find larger sums of money that entrepreneurs need to achieve positive cash flow, rather than digging deeper into solo angel’s pockets to find these funds.
  • And, finally, an unintended outcome of joining an angel group is that I have found myself enjoying the company of many new friends, like-minded folks with similar interests.

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.