The Advantages Of Belonging To An Angel Group
Angel investing as an asset class is continuing to grow and many accredited investors want to learn how they can best get involved. When I’m asked that question I have one simple answer—start with a local angel group. There is no better way to simplify the complexities of angel investing than by working alongside like-minded angels. There are many good choices for investing, from investing on their own or informally with friends, to using on-line platforms for accredited investors and working with local startup accelerators.
Is an angel group really for you? While angel groups are more traditional than investing through the cloud, I think they offer great advantages, particularly compared to being a “lone wolf” angel.
Here are some of my favorites:
Access to more and better deals – I might run into a few good deals on my own, but an angel group connects me to literally hundreds of opportunities I wouldn’t know about otherwise. Not only do angel groups have websites and get the word out that they are looking for investment opportunities, the member angels have social networks that attract a much wider variety of deals than most individual angels can on their own.
Returns – With good deals and strong investment processes come the chances for better financial returns. A 2007 study showed angels in groups had a return of 2.6X in 3.5 years, which works out to 27 percent IRR. A more recent study looked at the experience of one group, Go Beyond Investing. This interesting report found more than 80 percent of their members who made at least one investment had a positive return, benefitting from a portfolio approach and education, among other things.
Diversified expertise – Angels get approached all the time by entrepreneurs in sectors outside their niche. In an angel group, another angel is likely to understand the deal. They will lead the investment process and support to the company after the investment. That angel can help you better understand the investment opportunity. You still have to decide if you invest, but if you do, you can diversify your portfolio in a more passive investment. Also roles amongst angels in the group can change later, as your expertise will likely be needed in another deal.
A channel for entrepreneurs who approach you – I love the spirit of entrepreneurs, but sometimes it’s really nice to tell one looking to you for investment to send their executive summary to your angel group’s website or manager. That’s where my local deal flow goes. Plus, the manager or a committee of angels screens the opportunity, saving me some work. It is often good for the entrepreneur too, as angel group websites often have great information resources for them.
Learn the ropes – Even experienced entrepreneurs find there is a lot to learn when they become angel investors. I like that angel groups offer standard investment practices and documents, but the best part is learning from the questions and comments of experienced angels in the group. A year ago, one of the founders of the Women’s Capital Connection spent 15 minutes talking to the whole group about how she decides to invest in companies and what her portfolio strategy is – I got so much value from that short discussion! Many groups offer formal education of the ins and outs of term sheets, valuation, due diligence and other important parts of the process.
Pooling individual capital – With the combination of investors in a group, there is a better chance that entrepreneurs can attract enough money to build their businesses – increasing the odds of a successful investment. It is now common to see angel groups syndicating with each other, growing the pool of capital beyond their group. Organizations such as Angel Syndicates Central serve as central “switchboards” for group collaboration, helping deals become investable and monitoring the portfolio companies. Other groups syndicate via the relationships and processes they have developed.
Fun and friends – Angel group meetings are serious fun. There are interesting entrepreneur pitches to hear, amazing investors to work with and great food and drinks. I hear story after story about how angels met lifelong friends through their angel groups, leading to cool trips and family get-togethers.
I’m obviously a fan of angel groups and could go on and on, but instead I’ll wrap it by stealing a line from Dick Reeves, ACA board member and founder of Angel Syndicates Central. Dick says becoming a member of an organized angel group brings the power of the group to the selection process, a broader selection of choices, more choices per year, and the wisdom of the group when investing.
If you are interesting in learning more about business angel groups in Ireland contact HBAN today on 01 669 8525 or you can visit the Angel Capital Association website for a list of their international groups and online platforms.
This article was first published by Forbes and was written by Marianne Hudson.
"I am an angel investor and Executive Director of the Angel Capital Association (ACA), the world’s leading professional association for angel investors. ACA is focused on fuelling the success of accredited angel investors who support high-growth, early-stage ventures, and has more than 12,000 member angels across North America. I know one thing for sure: there is a method to the madness. In shaping ACA professional development programs and public policy advocacy, I have the opportunity to hear firsthand from experienced angels and the ecosystem at large—what works, what doesn’t work, and strategies to consider for everything from getting started as an investor, to finding great deals, to supporting the companies you invest in to growth and exit. I know about trends and impacts of angels and innovative startups too. Earlier in my career I ran the angel initiative at the Kauffman Foundation, which led to ACA and the Angel Resource Institute, and where I also oversaw entrepreneurial education and mentoring progra designed to ensure that more entrepreneurs develop sustainable, innovative businesses. I love entrepreneurship and have worked in supporting fields for more years than I will admit. I am a member of two angel groups in Kansas City and also connect with several accredited platforms."