Angel Insights Blog

Angel investing groups provide a considerable power to angel investors, which carries over to entrepreneurs and our startup economy.  I particularly like the powers of portfolio diversity, the right people and size. 

The increased portfolio diversity that comes with the broader reach of a group

Like any investing activity, diversity in the angel investor’s portfolio is important for long term financial success.  Angel investors must have the opportunity to choose among a broad range of industry segments and stages of company development in order to build a portfolio of 15-25 investments over a period of 5-7 years.  This diversity will help overcome the startup company risk statistics that work against angels who fail to build that diversity in their portfolio.  Unfortunately, working as an individual angel it is usually impossible to attain this diversity unless you are in a major center like Boston or San Francisco.  Becoming a member of an organized angel group in your smaller city, however, brings the power of the group to the selection process:  a broader selection of choices, more choices per year, and the wisdom of the group when performing diligence on each company.

The right people

Being a member of an organized angel group also brings the advantages of having the “right people” present.  The group will attract people with deeper and broader experience, who will bring their larger perspective to the deliberation and decision making process.  Now the investor has the advantage of a team of people performing diligence on the company and its business model.  When angel groups collaborate with each other on a deal, the diligence team inevitably becomes larger and more experienced, which makes for a better decision.

Size advantages

There are size advantages for angels acting in groups.  A group of angels operating with a good leader can move faster and with more momentum than individual investors.  Now, rather than appearing as one name in a long list of individual shareholders in the company, the angels are listed as one very large shareholder, usually with representation on the board of directors and the better terms that come with the greater negotiating power of the large group. Now, as part of a group, the individual benefits from the domain expertise of other group members, resulting in better informed decisions by members.  Now, the average individual member’s investment can benefit from the board service of someone more qualified or able to provide that service than the individual might be.