The Relevance of Angel Groups in Startup Funding

As the startup funding landscape goes through so much change, there is quite a lot of conversation about the role of angel groups in the startup community. I enjoyed a recent discussion among ACA members in our LinkedIn Group for members and investors on this topic, following a blog, Can Angel Groups Regain Their Relevancy?. Feel free to check out the whole discussion, but I got a couple of great kernals from ACA's members that I want to share:

Angel group activity is growing and better than ever. From Brian Cohen, New York Angels: If anything the angel group environment is growing, getting smarter and much more in-tune with the needs of the startup community - particularly in New York City, where the growing network of angel groups (new one recently called 37 Angels - for women angels), super angels, micro-VCs look for every opportunity to collaborate and learn from each other to be smarter investors and most importantly advise young entrepreneurs flooding in to the City from all parts of the globe.

And Jean Peters, Golden Seeds: I suggest that angel groups are among the most robust, vibrant and active sources of equity capital for high growth startups. We do extensive due diligence, yes; but we do it in a timely manner with processes that rely on a substantial network of expertise,, thought leadership and advisory support among our group members, and across the amazing angel networks that today are laced together in a deep latticework of capital formation on both the financial and mentorship fronts. Angel groups in fact are gaining relevance by the hour and minute, and may well become the most important pillar, as the "adult supervision" in the crowdfunding bullring unfolding before us. … There is a reason that Golden Seeds has grown from 3 members in 2005 to 160 members in 2010 to 270 members today, making our network of investors in high-growth, women-led startups the fourth largest in the country. We are relevant; we invest; and we support our companies explicitly, from screening through investment, follow-on funding and exit.

Startups have several funding options, which can be interwoven (or not). Catherine Mott, BlueTree Allied Angels: The truth is there are multiple sources of funding for entrepreneurs and one only needs to look at cap table to see how all those sources integrate to fund the success of a venture.

Jim Connor, Sand Hill Angels: There are too many incubators/accelerators putting too many companies through an entrepreneurs "finishing school" and graduating them to a DEMO day or Portfolio Showcase without sufficient innovation, market definition or defendable advantages in the product set. The result is a lack of interest and action among the investors, i.e. the angel groups and seed fund VCs.

Due diligence by angel groups has pros and cons. Ben Littauer, Boston Harbor Angels/ Launchpad Venture Group/ Walnut Venture Associates: The post…highlights real issues for angel groups. Sometimes our diligence process can be inappropriately heavy and we can suffer from "bad apple syndrome"… There are some deals I like that aren't "group friendly"; so be it. But there is no evidence in my portfolio to indicate that the groups are mistaken in being careful about their deals or their valuations.

And Brian Cohen: From my conversations with many active angel investors they wish they had taken more time to ask more questions to make smarter bets. As a friend of mine once said, "not doing proper "do" diligence is like "unprotected sex". A too quick draw investment without proper review is senseless. That's what binary angel investors do. Either it wins or losses. That's not professional-level angel investing! In fact, most of the entrepreneurs I know really appreciate the kind of insight a quality "do" diligence process provides.

Angels in Groups May Have Higher Returns. Basil Peters, Fundamental Technologies and Strategic Exits: My personal observation is that angel investors in groups are much more successful than individual investors. Based on what I see, 3x seems about right, although not much data exists to prove that. To understand why I believe that, this talk from the 2010 ACA Summit contains quite a bit of information to support how beneficial angel groups are to the entrepreneurial ecosystem and why angels have more success in groups:

I invite you to continue important conversation through this blog, your personal conversations and at the 2013 ACA Summit - Navigating Change for Angel Success . There is a track of five sessions that looks at the Evolving Early-Stage Financing Landscape, which will include accredited platforms, representatives of the unaccredited crowdfunding movement, startup accelerators, and experts addressing the so-called Series A Crunch.