The Perfect Angel Group

Recently an angel group surveyed members on how to improve its meetings. If I could start a group from scratch, here’s what I would try to do.

People:  I like having some minimum responsibilities for members.  I suggest a minimum number of investments or investment dollars per annum; a minimum number of meetings made–say 40%- and a minimum requirement to bring 1 or more guests who can become members or otherwise add value to 2 meetings a year. The ideal number of angels in attendance at meetings would be between 15 and 30 people. Several successful groups are larger, but then engaged discussion can be difficult. I would encourage all members to join multiple groups, actively recruiting “professional angels”, i.e., full-time private investors, who can spread their knowledge out to newer angels.

I’d also like to have formal staff.  This need not be professional, if money is an issue. Two examples of rotating volunteers can be found in Walnut Venture Associates, which uses dedicated interns from Babson; and Mass Medical Angels, which in addition to having permanent volunteer directors also has a PhD candidate in immunology helping to coordinate. For many groups with enough group members, one part-time employee might be appropriate.

Lastly, it is important that the meeting organizer assure there is appropriate domain expertise able to review the pitches at the meeting.  For a generalist group seeing, for instance, a presentation on a medical device, staff should make sure that there be listening a potential user of the device as well as, say, someone versed in regulatory issues among the attendees.  That might mean inviting members of another group to attend to fill out the attendance.  Having other group members sit in also helps later on when it is time to syndicate large rounds.

Firepowder: It goes without saying that the best startup companies want to present to those groups with the most bucks to spend. Since the “herding cats” problem of responding to and corralling individual investors is a pain both for the companies and for the angel group heads, it is nice to have a sidecar fund of some type to add financial muscle to back good deals.  CommonAngels is the best example of this—they have raised several sidecar funds, which not only brings in non-member money into their deals (disclaimer, I’m invested in CommonAngels Fund III,) but also allows them to add on to any deals where there is sufficient objective standard of participation of their members. The latest fund also gives the two managing members of the group discretion over a small percentage of the fund that lets them move quickly for select seed opportunities.

Even more attractive to companies seeking financing might be approaching a group like Hub Angels, which invests monolithically through a single shared fund on behalf of its members—if enough members express interest, a follow-on committee has great weight in helping to determine whether or not the group, not the individual members, invests. Thus, an entrepreneur knows that if they get a check after presenting at Hub, it will be sizable, and that communications can be made to just one entity.  Personally, I prefer to have full discretion over my money for the groups in which I participate—I doubt I would join Hub for just this reason—but this group decision aspect definitely makes for better discussions, more participation, and it attracts high quality presentations.

Reporting:   Before the meeting I’d like to see the agenda, including the presenting company’s presentation and Angelsoft one-page summary, one week in advance.   Equally important after the meeting would be copies of the reports, including who was interested in following up for due diligence, comments from people, etc.  River Valley Investors, with two staff members on the job, does a very good job of communicating. A relatively new group, RacePoint Capital, is also notable for its good organization. RPC’s founder, Christopher Mirabile, is a member of several other groups, and he has attracted a core membership of experienced angels like himself—that in itself leads to a better informed communication network. What would be the ultimate? I’ve heard of a Texas-based group, the InvestIn Forum, offering its members a password-protected video copy of presentations. That benefits all members, not just those who miss the meetings, but also the due diligence committee and the out-of-towners.  As costs of video transcription continue to decrease, I’m hoping that the video plus the transcription becomes a standard feature soon. I recently invested in a deal with MA2 even though I wasn’t there to see the presentations—it was all due to the quality of the due diligence work presented to members afterwards.

When a deal does close, unless there is a compelling reason, data should be shared with responsible parties who can help do sector-wide analysis. In addition to Angelsoft, I’d recommend contacting Professor Jeffrey Sohl at UNH’s Center for Venture Research. Sim Simeonov of FastIgnite also aggregates data; his statistical analysis was my favorite presentation of last summer’s Angel Boot Camp held in Boston.

As a financing round is about to close, members should get an email tickler from staff about the opportunity, with references to who is leading the round and any other confirmed participants. That would make it easy to get together a conference call if desired.

Finally, as long as I’m dreaming, I’d love to have reports and deal summaries from other groups emailed to me that might be distributed around angel group heads–every deal I look at improves my knowledge and perspective, even to know who has pitched and been flushed is of interest.  For this reason, VentureHack’s AngelList virtual group is becoming one of my favorite sources. It may not have the benefit of group discussion, but instant access to deal details, presented in a friendlier and more curated form than AngelSoft (and including references, votes, current investors and other forms of social proof and screening,) make it a product I plan to review regularly.

Website: I’d like to see an angel group’s website updated bi-monthly, before and after the meetings.  Meeting notes and due diligence areas would be password protected. In addition to telling potential applicants and companies all investment areas of interest, the site should have links to all companies invested in. Here is a good example from Boston Harbor Angels with links and descriptions.

Many groups have sites with member info as well. Once again, here is Boston Harbor Angels’ membership page.  The public listing of members is useful to companies to try to identify and educate a champion prior to their meeting presentation.  While I would not suggest having contact information for each member available publicly over the web,  such contact info could be privately put in a password-protected section. That section might also include either some forum or a wiki to allow for public discussion by members of companies or other issues, without necessarily having to add on a Google groups or bombard members with each grouplist email.

Venue: I like rotating sites. A committee can be formed to come up with venues, balancing travel hardship with members and potential videotaping arrangements vs. the benefit of bringing in new blood and new sponsors.  MA2 does this very well, traveling to corporate sponsors (like Pfizer, Merck, law firms, etc.) that helps  get sponsors excited as well as get in new blood.  The November meeting of Anges Quebec took place in the Montreal board room of the Royal Bank of Canada, who then catered a post-meeting reception. It was naturally conducive for great networking and schmoozing. (See my earlier blogpost on that event.)

Timing: Almost all groups meet monthly. My preference is for longer meetings late in the day. At Walnut, dinner meetings start at 5:30; meetings at Anges Quebec, at 4pm. Lunch meetings are worst, unless the membership is mostly retired entrepreneurs without other commitments. Too much of the day gets taken up, and attendance is low.  Breakfast meetings are better than lunch, but some members want to rush out early to make their other scheduled calls, and almost definitionally, out-of-towners like me (there aren’t any groups near where I live) won’t be able to attend.

Speakers: I would like to invite one prominent successful entrepreneur address the group once a quarter.  I’d also like to see 4 other meetings a year a presentation by someone in the early stage space, perhaps a VC fund or a guest SuperAngel, talk briefly about their activities.

Affiliations: First and foremost, every group should be a member of the Angel Capital Association, the National Angel Capital Organization in Canada, or some regional group.

Secondly, each group should do its best, (via membership or repeated guest invitations,) to make links both up and down the food chain.  North Country Angels does this successfully: it is headed by a Dartmouth professor who sees all of the deals bubbling up through that ecosystem, and the NCA members include other schools’ entrepreneurship professors, tech transfer officers, and a startup incubator director to help attract incoming deal flow.  Equally important,  membership also includes regional VCs, venture partners, and the lead investor of a state-sponsored investment fund. This helps syndicate follow-on funding in future A and B rounds.  Without good ties with institutions involved in getting the deal flow in or financed in follow-on rounds, a group is handicapped and likely will earn sub-average returns.

Number of companies presenting:  I would rather see fewer high quality presentations, with companies who have been well vetted. For a two hour meeting, allot 25 minutes per company, with 3 companies seen, of which at least one is being referred to us by another group which is in the midst of due diligence.  These referred deals increase our likelihood of involvement (we investors are mostly sheep, yes?), as well as provides due diligence at the ready to speed the process.

One of the screening committee’s biggest job, before even seeing initial presentations, will be combing through the recommendations of other angel groups.  AngelList, even more than AngelSoft, is helpful as well.

Due Diligence:  It would be nice to have a standardized template for DD. (Let’s lobby David Rose of Angelsoft! Suggest that they post a best-practices DD form that can be shared in a single but flexible format.) Since most angel groups have signed a treaty to share DD, doing so (with prior advisement to entrepreneurs) will serve to educate members and generally improve investment outcomes.

Such sharing was done very well on the Incentive Targeting deal, where Paul Silva of Angel Catalyst and RVI managed the overall process, Michael Mark of Walnut coordinated and led term sheet negotiations, and eight (!) angel groups coordinated smoothly to finance the transaction. (For the case study of this, listen to this podcast from Frank Peters or this  webpost.) I’d argue this group DD should be done universally  on 1) Angelsoft, and 2)on each participating group’s password-protected site, archived for easy reference–it’s my experience that less than 1/3rd of the angels I know actually visit Angelsoft; and 3) via email to the interested angels.

Format of meetings:  My favorite format is used by Open Angel Forum (Jason Calacanis‘s new initiative, with Boston chapter run by Bill Warner):  It’s done at dinner time, all companies are invited to sit in and hear all pitches, all comments are public, and people mingle later for the rest of the night with beers, chatting deeper with the companies they like.  Question time during presentations is under 10 minutes, because of the followup available afterwards. The private discussion of “Who has interest?” can be a quick one, but this newer, freer format gives a lot more time to get to know the entrepreneur.  The beauty is, you don’t have to spend more time with the people/companies you aren’t interested in, and that time can be spent getting to know the others all that much better.  This just wouldn’t be possible at a morning or lunch time slot.

So much for creating my ideal angel group.  No group I know of puts together all of these items. But some do. My next post will rank my top three groups and what makes them stand out.

About these ads

3 thoughts on “The Perfect Angel Group

  1. What are the funding alternatives for growing businesses seeking capital? Every option has pros and cons. A business owner that wants ultimate flexibility would ideally fund their own business, but that isn’t a realistic option for many business owners. Reputable angel groups, like http://www.birminghamangels.com, help fill an essential gap between self-funding and other funding options that put a business on-the-hook for capital plus associated interest.

  2. I’m a big supporter of having the group’s leader/manager have their incentives tied to outcomes, not just activity. I’ve seen too many groups run by volunteers or executive directors be too focused on making investments rather than working on effort to lead to exits. It takes a lot of work over the life of the company and usually coordination with many people rather than just the deal lead. The person who coordinates the group has a lot of influence over the agenda and should have incentives aligned with the investors making a return.

    1. Agree completely. However, only a minority of angel groups have sidecar funds where this can be applied. Is there a model where the group heads in the traditional individual/non-fund approach would get compensated for helping drive to an exit? And is there any statistics showing that the involvement by these folks (presumably on the boards) actually increases likelihood of exits?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s