Paul’s Way or the Highway? Angels Have Many Paths

By: Jean Peters, ACA Board Member and Managing Director of Golden Seeds

Paul Singh, the ubiquitous startup investor, generously participated on two panels at the Angel Capital Association’s 2014 Summit in Washington, DC a couple of weeks ago – and came with a message: angels must pursue his (tech-enabled and focused) way -- or hit the highway.

At least that was the takeaway he reported in his recent blog post: Angels and Angel Groups: Adapt (or Get Out).

Paul’s message at the ACA Summit was: “2014 is the year that technology will go mainstream.” He says that online platforms and web-based syndicates will enable accredited investors of all stripes to find the best deals – lead by “branded,” well-known lead investors and VC funds. So, even an unschooled accredited investor (“Joe the plumber or Sally the lawyer” as Paul characterizes them) can clamber on to the hottest deals – albeit with the encumbrances of management fees and “carry” charges typical of VC funds. Angels operating in geographically-focused groups who insist on meeting with founders, negotiating terms and conducting days or (horrors) weeks of due diligence, will miss the boat on the most attractive deals, Paul asserts.

The 600+ accredited investors at ACA’s Summit – representing traditional angel groups, angel funds, individual accredited investors, accredited platforms and others from 44 states and more than 30 countries, are representative of the 200,000+ strong core of active accredited investors who invest in roughly 60,000 startups each year – more than 200x the amount of startups invested in by all seed-stage VC’s combined. Angel groups often focus on enhancing regional economic health, on sectors such as life sciences or clean tech, or on underserved sectors such as female entrepreneurship. The beauty of the ACA Summit is that these diverse groups come together for several days to share best practices, ideas and approaches to investing, to raise the tide of angel professionalism for all. It is an invaluable forum for accredited investors – whether or not they are part of an established angel group. Paul provides a useful perspective in this context.

Paul (who I consider a friend and comrade in seed-stage investing), was co-founder of 500 Startups, an accelerator and fund that puts small amounts into hundreds of startups. His new ventures are based in the DC area: Disruption Corp. and its sister Crystal Tech Fund – are in Crystal City, Virginia. He is developing a startup complex to nurture post-seed companies in which his fund invests. His focus is on companies caught in the gap between early-seed funding, and the highly coveted Series A round that fails to materialize for the majority of companies.

Paul has a point: there are multiple models for deal-sourcing, and angels can and should take advantage of technology where it advances the ball in the startup funding arena. New accredited platforms – which are now an official ACA member category, with nine already on board – will alter the landscape and may help bring new accredited investors into the field.

But, the new Crystal Tech Fund itself relies on the diligence of angel groups, as well as the “incubatadiligence” of the accelerator process itself. This curation is at the heart of how promising seed stage businesses are identified – and mirrors the work of the 400+ organized angel groups nationwide – who bring mentorship, contacts, strategic planning and operating experience to the table along with their checkbooks. It is from this population that funds like Paul’s will find many if not most of their candidates.

It’s quite the case with Crystal Tech Fund’s very first investment in Speek, which was FFBA (first funded by angels), including the NextGen Angels group in Washington, DC. And, as this fund seeks deals from across the U.S., and the world, the portfolio companies of angel groups are likely to remain a significant source – where a fund can make a quick decision, because experienced angels have done the deal selection and necessary diligence in advance.