Ranking my Favorite Angel Groups

Posted on November 24, 2010 by Ty Danco

The last post on The Perfect Angel Group created an idealized composite group that unfortunately doesn’t exist. The post did beg the question of which is my favorite group, which I’ll answer here.  Quick disclaimer—I have visited less than half of the groups in New England, and none South of Boston.  So while this is a limited and regional list, I think it’s still instructive to look at a few of the groups in a little more depth.

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The Bronze Medal goes to Mass Medical Angels (“MA2”). There are several exemplary features of this group, not the least of which is that it is put on by thorough professionals at zero cost to participants. While zero dues can’t be sustainable in the long run, it is nonetheless a testament of the love and tireless volunteer work put in by its Board. The principals are Richard Anders (a successful serial entrepreneur), Carl Berke and Roger Kitterman, both VCs with the Innovation Fund at Partners HealthCare, and Pushwaz Virk from Dimagi.

What strikes me each time I attend MA2 is the incredible credentials and domain expertise of its members. As the name suggests, it focuses exclusively on medical investments, primarily in medical devices, and its members include department heads of some of the finest hospitals in the world, MD/PhDs, technologists, lawyers, engineers, regulatory experts, biz dev people, etc.  Every corner of the medical ecosystem is represented and represented well. Not only does this make for an exceptional screening committee, with the end benefit of uniformly solid, vetted deals making it through to the membership, but it reaches another level entirely on due diligence. While all angel investing is necessarily risky, I’m comfortable guessing that MA2, as it is known, will come up with a higher success rate than any other group I’ve met.

Let’s take Castlewood Surgical as an example of MA2′s due diligence. I invested in Castlewood (via North Country Angels) primarily due to my faith in its new CEO, Wolfgang Daum, who had done an exceptional job for investors at his previous job at Boston Heart Lab. Having tried to recruit Wolfgang to an attractive opportunity in Vermont, I was confident that wherever he chose to go would likely be a great story. So, I invested without deep due diligence. Fortunately, I was able to sit in later on DD with the group from MA2, and I was floored by the thoroughness of the effort. First, MA2 has a standing head of DD, Dave Tischler, whose presence adds for a consistency and professionalism to its process. Then, as at most groups, interested members join in on the discovery process. There have been  at least 3 due diligence meetings so far—the first with Castlewood’s founder (a physician/entrepreneur), another with the full management team, including the inventor of their device, and most recently without the company, but with the DD group interviewing with a heart surgeon from Cleveland Clinic, questioning him as a prospective device user acccompanied with an insider’s view of that corner of the surgical market, what hurdles of proof the new company had to pass for fellow surgeons to want to adopt it, the procedures at Cleveland Clinic and elsewhere to get a device through the purchasing and accounting departments, etc. Now THAT is due diligence.  And this is all after the original presentation made it through a knowledgeable crowd at both screening and group presentations, both of which were textbook examples of careful investing.

The downside is that such diligence takes time, and long decision times are anathema to entrepreneurs looking for funding. Given, however, the slow state of med devices getting through FDA approval, trial studies, etc., this approach is justified for the medtech sector. And as the best specialist in town, MA2 gets to look at a lot of good flow that doesn’t go to all of the tech-oriented groups.

The Silver Medal goes to Walnut Venture Associates out of Wellesley, MA. Like MA2, Walnut also specializes, but this time in IT sector, although that definition occasionally gets stretched.  Many of the members are MIT graduates (albeit from the ‘70s and ‘80s), and they are uniformly experienced investors. Being old pros, things are done a little more loosely. Members rotate chairing the meetings, and there exists a solid camaraderie and respect between members. Not unimportantly for me, meetings are held in the evenings on the campus at Babson College, one of the few angel groups that has evening hours. This leads to a more unhurried pace, and allows for a higher, more consistent turnout.  This in turn allows for a lot of shared history and reference. I’ve learned more sitting in on their meetings and talking with their members than at any angel group. While I came to angel investing with the background of 25 years of investing Other People’s Money in public securities, as well as an operational experience of running a successful startup from launch to exit, there was still a huge learning curve for me in angel investing. 18 months later,  I still learn from the Walnut members’ understanding of the nuances of angel investing.  In summary—interesting deals in capital efficient sectors, domain expertise, experienced professional angels, and a relaxed evening setting that allows for longer discussions with the presenting companies—what’s not to love? Well worth the long drive from Burlington.

And for the Gold Medal position…Open Angel Forum (“OAF”) Boston. Man, even their logo looks like a gold medal.  There have only been two meetings in Boston to date, and I haven’t pulled the trigger on a deal that I’ve seen there yet, but Jason Calacanis has come up with a different format that instantly makes this my favorite angel group. Like AngelList, OAF is an experiment in shortening the distance between entrepreneurs and angel investors. Both are global in outreach, but while AngelList is virtual, OAF is creating chapters in big financial or startup centers: Silicon Valley, San Francisco, LA, Seattle, New York, Boston, London, Colorado Springs, and Philadelphia, with management split between the founder, Jason Calacanis, and his associate Jason Krute. The two coordinate with local point people at each chapter.  In Boston, that means Bill Warner, the force behind the Unconference as well as bringing TechStars to Boston.  Mark Suster’s writeup is here for OAF LA–the format looks consistent across all of the chapters.

In my “Perfect Angel Group” post, I talked about my desire for several things which don’t even exist at OAF, and probably won’t happen in the short term.  There is no good recordkeeping, little advance notice if any on companies presenting, no archiving on the website, no due diligence process, and no formal affiliations with other groups. So how can it succeed?  It brings a stunning group of people together in the right way, and then gets out of the way.  While I’m going to guess that the average angel invests in perhaps just 2 deals a year, the average investor at OAF is far more promiscuous, and that’s a good thing…at least in angel investing. Meetings are in the evening, with plenty of food and drink, and unlike at other groups, the angels and all companies are together in the same room the whole time. No secret discussions, no closeting off of the entrepreneurs. Then, all of the angels introduce themselves, mentioning their most recent deals.  (That alone provided a lot of good conversation later on.) Presenters go for 5 minutes, with just 5 minutes for questioning, keeping the format moving, but that’s just the beginning. After the presentations are over, there is all the time in the world to move around in groups, getting the right people together. No one was forced to spend time (other than the 10 earlier minutes) on a deal that wasn’t for them, yet you had all the time you wanted to talk to the entrepreneur you wanted to, while still having the ability to corner a fellow angel for an off-the-record reality check.

From the entrepreneur’s point of view, it’s equally valuable. 20 super-qualified angels (well, some seed capital VCs sneak in), all able and willing to pull the trigger and make a decision, and all with broader connections to other angels should they want to help promote a company and raise a round.  While there is a danger that the locals will have already seen some of the presenters before, attention is paid to make sure that a few of the companies are essentially debuting for that crowd. So far, this has been ensured by having at least one of the companies come from out of town.  At OAF Boston #1, companies came from Montreal and DC in addition to MA, and at the 2nd meeting one presenting company came in from Ohio. Katie Rae (of Project 11 in Boston, and a MassChallenge mentor) now is selecting the companies to present, but I’m sure she benefits from Jason’s high visibility and his years of experience recruiting the companies presenting at TechCrunch50.

If there is a weakness in the OAF format, I don’t know it. Should an angel like a deal but require more time (or perhaps the ability to bring in some other domain experience), there’s nothing stopping them from making it happen.  And with most all of the crowd being professional investors (there were still a few with day jobs as entrepreneurs of their own companies), no lack of resources or knowledge that would keep them from a decision.

So, Open Angel Forum has positioned itself between the old (slower moving, less active) angel group model and the new internet speed dating (or bandwagon or “party round”) via social proof offered by AngelList. It still captures a physical meeting, which I believe is essential, but the flow and participants are qualified in such a way that the signal to noise ratio for all involved is incredibly high.  For angels, even if no company is right for you, it still is a focused and worthwhile time to get together with your peers. Without the silly allegations of “AngelGate”, if you’ve had to suffer through the coverage of that.

Congrats to the two Jasons for pulling off a better mousetrap. It is my giri to thank you. May you launch 1000 ships and 1000 companies via your new creation.

Filed under: Angel, Boston | Tagged: , , , , , , , | 6 Comments »

The Perfect Angel Group

Posted on November 14, 2010 by Ty Danco

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.

Filed under: Angel, Boston | Tagged: , , , , , , , , , , , , , , , , , , , | 3 Comments »

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