Myths and Reflections of Angels from Around the World


This post was co-written by John May and Wendee Wolfson, co-hosts of the 2013 International Exchange at the 2013 ACA Summit.

At this year’s International Exchange, we asked five of our most experienced angels from around the world to help us do some “myth-busting.“ Jordan Green, chair of the Australian Association of Angel Investors; Claire Munck, former Managing Director of EBAN and current Board Member of Belgium’s BE Angels; Fernando Prieto, Chairman of Chile’s Southern Angels; Luigi Amati from Meta Capital in Milan, Italy; and Ross Finlay, ACA Board Member and co-founder of First Angel Network Association of Canada, provided their perspectives on whether some of the most common assumptions in angel investing still hold true.

Assumption #1: Distance matters for mentor capital. While historically, angel investing has been very local, syndication across groups has become more common within countries and there is also a growing interest in cross-border investing between countries. Can it really work? Is it possible to make it profitable, or should angels stick to their own locations? Early stage investments still benefit from having a local mentor and deal lead who can be present to help and to monitor the company on a regular basis. If angels want to invest beyond their own geographies, they should develop their networks, get to know other angels, and learn about their investment experiences and guiding principles.

The Verdict: The key to investing long distance is to have trusted syndication partners. This can work by attending conferences, engaging in discussions, and finding partners in the global network that supplement your expertise.

Assumption #2: Cross-border investing is too hard to manage and too risky to generate profits. As the ranks of angel investors have grown and the numbers attending each other’s conferences have expanded, the idea of cross-border investing is beginning to get more attention. It is still not common for deals to be syndicated in different countries, and significant obstacles exist. As in Assumption #1, geographic distance can make company monitoring difficult. Investment terms and types vary among countries, and legal issues may be resolved differently. Language can still impede communication and more significantly than geographic distance, cultural differences can be real barriers to understanding management philosophies, investment cultures, and investors’ goals.

The Verdict: As the idea of cross-border investing gains traction, the most effective way to manage investment risk is to have a trusted local partner on the ground. Cross-border investing can benefit portfolio companies by enabling them to expand into new global markets more effectively. Local investment partners can use their contacts and their deep knowledge of local conditions and commerce to help companies establish a foothold and minimize risk.

Assumption #3: Seed investing is difficult and resists institutionalization. Historically this stage of investing is a hands-on, patient capital endeavor for individuals who are “high touch.” The conference panelists discussed current initiatives, especially crowd funding, state sponsored seed funds, accelerators, and on-line matching services as attempts to be more efficient in this class of investing. Technology is seen as the answer to making seed investing more efficient. The conference panel seemed to believe that initial rounds of outside capital from angels and early stage venture capital players were keys to building a core of support for the entrepreneur.

The Verdict: Investors should use more technologically grounded funding mechanisms for follow-on or side-by-side investing rather than the sole “mentor” capital that takes interpersonal delivery. Passive investing will grow as new institutional mechanisms flourish, but they may best come after traditional angel support rather than replacing it.

Assumption #4: All angels need a “home run” in the portfolio to provide a risk adjusted return in their portfolio. For the riskiest stage of private equity investing – pre-revenue startups with a plan and a prototype - each part of an angel’s portfolio must have the capability to be the winner, which offsets the losers. But not all of startups live in Silicon Valley or in Boston, so negotiations with entrepreneurs must be tempered with realistic expectations of how big the company can grow. This was highlighted by the foreign panelists, who have never had startups in their home country return 30 – 40 times their investment. Instead each culture and community needs to realistically align up side expectations with market size and growth opportunities to define their best valuation and return assumptions.

The Verdict: Investors should not use US West Coost negotiation approaches for return calculations by angels in developing and emerging markets. Instead, realistically negotiate terms of investment to reach for high yields on these risky investments because even the best angels lose 30-40 % of their bets over time.

Assumptions #5: Mentor capital is the key to success. Can an angel realize profits as a passive investor, or does the original notion of an active angel investor who provides mentoring, guidance, connections as well as cash, the most effective path to success? Studies have shown that a certain amount of due diligence beforehand and active portfolio management and engagement with the entrepreneurs post-closing result in better investment returns. So what about the side-by-side funds, larger groups with unique structures, and the Scottish Enterprise Fund? Can those investors make money?

The Verdict: The panel of experts agreed that based on their experiences in very different geographies, angel investors should take active roles in their portfolio companies. If they want to be passive, the key, as in our first two myths, is to have an active deal lead as a trusted partner, and piggyback on the due diligence, mentoring, and board role of the active angels. Being purely passive, with no active deal lead, reduces the likelihood of success significantly.

Assumption #6: Portfolio diversification is key to angel success with an active role in 8-10 investments in different markets as the goal. Do angels win if they hold 10 to 20 small positions spread among 3-4 different markets? Common wisdom says it is hard to pick a big winner each time, similar to investing in the public market. The panelists all agreed regardless of industry, culture, or sophistication of the marketplace, that portfolio diversification is key. It takes years to grow the company, and investors have to be ready for external circumstances. Staying small and spreading out bets has become a best practice in any business environment.

The Verdict: This was the one “myth” that all panelists believed actually had wisdom. It is not sustainable to be in the angel space and only make one bet occasionally and beat the odds. The session ended with nods and handshakes!

No matter the country, culture, or economic differences, some angel investing best practices stay the same.


John May, ACA Chairman Emeritus, is the Managing Partner of the New Vantage Group, which has organized five angel investing organizations in the Washington, DC area since 1999, placing funds into more than 50 companies. He is a co-general  partner in the UK based venture fund Seraphim Capital LP.


Wendee Wolfson was a co-founder of the country's first professionally managed, pooled fund of active female investors in early-stage private equity transactions, WomenAngels.net. She was also a co-founder of Women's Growth Capital Fund, a venture capital fund focused exclusively on women entrepreneurs.

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