Everything You Wanted to Know about Commingled Startup Funds…but were afraid to ask

We're talking EARLY stage

One of the smarter people I know, an engineer by training who has gone on to successfully manage $billions on both the “buy side” (i.e., institutional investors) and sell side, has asked me to write some posts aimed at educating people who want to invest in angel funds, rather than in individual investments. Seeing as we have more or less the same background (excepting the engineering degree), and I’ve done this exercise myself, I’m going to more or less reprise what I went about learning, skipping out all of the stuff which might be relevant to direct investing (e.g., term sheets, valuations, other legal stuff taken care of by the money managers.) Not sure when I’ll post all of these, but the topics I see myself covering are:

1)      How angel investments fit into both high net worth portfolios and institutional portfolios

2)      What is the right amount for an individual to be allocating to angel investing (See “How to Not Lose Your Shirt…”)

3)      Nomenclature (angel vs. super-angel vs microVC vs VC). (Just go to the link for Manu Kumar’s take on it.)

4)      Reasonable return expectations, holding periods, and the limitations of current research on the topic

5)      Nine questions to ask an early stage fund when interviewing them

6)      A review of what industry sectors are amenable to angel investing, under what conditions

7)      A review of my favorite 10 posts by other authors on angel investing strategy…even though I might disagree with them. (Funny, I’ve never seen anything written on angel fund investing that wasn’t by a fund principal.)

8)      Strategies for a beginning (or advanced) investor in  early stage funds, and how investments in incubators are different

9)      A list with links to all the larger super-angel and micro VC funds (hint—I will definitely need to crowdsource here for many of the funds on the West Coast).  Perhaps as I research this, I’ll try to get some of the bigger names to give us a quick podcast, although I’ve no idea yet how to set those up.

10)   Portfolio construction, diversification, etc.

I’ll also try to enlist a few pros from later stage funds to opine, edit, or if we really get our way, guest post.  In my previous lifetime as an LP of a two reasonable-sized foundations, I okayed some investments in fund-of-funds, and had a few consultants giving us their take on who is good or bad in the private equity world, with perhaps even some medium-sized VCs included. But there’s a lot of difference between VC land and angel world, as has been discussed ad nauseum in the blogosphere.

I’ve been totally neglecting this blog, but for good reason—I’ve written 6 checks to startups, made 5 other commitments, and I’ve given term sheets or am otherwise trying to get into 3 other deals…all since January. Plus invested in one fund and committed to another.  (Checks cashed: UpNext, Draker Labs, Noise Toys/Apptitude, Green Goose, Saygent, and Powerhouse Dynamics, with commitments to Crooster, Evertrue, MassiveDamage, and two stealth companies.)  That is just a frightening pace, basically double the rate of last year.  But given my (supposed) discipline backed up by a shrinking wallet, the investing pace will surely slow way, way down, as I mentioned in this earlier post.  Which leaves plenty of time to spend trying to help out the existing portfolio companies, should they want more attention. Since I’m guessing they all don’t want elderly back-seat drivers, that means plenty of time to write a course on commingled angel funds for my buddy.

But until then, here’s a link to Business Week’s online article, “SuperAngels Shake Up Venture Capital” which focuses on First Round Capital, along with WSJ’s review article last year, and a slightly more comprehensive survey by ChubbyBrain. They’re a bit dated, but they get you started. We’ll have similar background reading homework in each of the lessons.

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