I woke up to the real world today after a great Thursday-Saturday stint judging the Rice University Business Plan Contest. If you want to read about a very strong field of new ventures, I posted about that on my main blog today.
I thought I’d add a note here about an interesting talk I had Saturday night, at the banquet celebration at the end of the contest, with Rudy Garza of G-51 Capital Management, about angel investors getting organized. Groups of angel investors in Texas are working together, he said. He mentioned the Central Texas Angel Network, the Houston Angel Network, and others; few of them familiar to me, but then I’m not from Texas. I’ve been on several judging panels with Rudy. He’s a smart, knowledgeable professional.
What he saw was a trend towards more organized deal flow and information sharing between angel groups working at earlier stages, and professional venture capital firms picking up the successful angel-financed startups as they take off. This isn’t a new idea, by any means; it just seems to be gaining popularity because when it works well, everybody wins.
It certainly happens often enough: the Web startups get routed through the angel groups to get going, create the prototypes, get the first bounce of users and traffic. The angels who put in the first few hundred thousand do it as convertible debt that converts to equity at the same ownership rate as the first venture investors, but discounted because they were there first.
As the ventures move up the scale from angel level to venture capital, they get seasoning and mentoring from the angel investors. The professional VCs get deal flow from the angel groups, as their deals evolve and mature into venture investment candidates.
I’ve seen signs of the same thing in my home state, where several Oregon-based angel groups are now linked together and sharing contacts and information.
One of the catalysts, as far as I can tell, is the emergence of angelsoft.net, whose website offers free services to angels and entrepreneurs, and paid services to VCs. It has information and posting for the angel groups and entrepreneurs, messaging and file sharing, so it helps the groups and the startups get organized, find each other, and share information.
This entry was posted on Monday, April 20th, 2009 at 7:24 am and is filed under angel investment. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.3 Responses to “Organizing Angel Investors”
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April 21st, 2009 at 9:33 am
Tim, you are absolutely correct in your observations about what’s happening in the angel world. Historically, angel investing has tended to be a personal, haphazard thing, with entrepreneurs and angels finding each other almost by chance. During the dotcom boom, however, angels in various cities who repeatedly found themselves in the same deals began to organize into semi-formal groups, in order to share deal flow and expertise, and pool their funds to make larger investments.
After the crash, when venture capital firms effectively stopped funding during the ‘nuclear winter’, the Kauffman Foundation, dedicated to supporting entrepreneurship, figured that the best way to help entrepreneurs was to jump start angel investing (which, as you know, accounts for more startup investing annually than all VCs put together.)
So Kauffman convened a summit meeting of the major angel groups from around the country, and out of that arose the Angel Capital Association, the professional alliance of angel groups, and the Angel Capital Education Foundation, which trains angels and entrepreneurs in best practices. This past week we held the 2009 ACA Summit in Atlanta, at which over 300 leading angels and group managers from around the country got together to meet each other, share best practices, and work on syndicating deals.
At the same time the ACA was being formed, many of the angel groups were in need of a solution to help administer their organizations, encourage collaboration among angels, and enable cooperative investments both among groups, and between angel groups and VCs. Thus arose Angelsoft, which today provides the back-end infrastructure for virtually the entire global, organized angel investment community. Five years after its founding, Angelsoft supports 17,000 accredited investors in 450 angel investment groups in 45 countries.
While Angelsoft is not a ‘matching service’, nor does the company itself make investments, the platform functions much like the CommonApp for college admissions. The difference is that because the vast majority of angel groups use the system to manage their deal flow and collaboration internally, there aren’t parallel systems. So if an entrepreneur applies for funding to a group using Angelsoft, they’ll be working on an Angelsoft-powered application no matter how they got to the group in the first place.
This provides a number of advantages, among which is the need to only fill out an application once. After that, applying to any other Angelsoft-based group is a mater of a single mouseclick. And entrepreneurs can find groups that invest in their type of company by using the Kayak-like sliders in Angelsoft’s investor search engine at http://angelsoft.net/startup-tools/investor-search.
Another by-product is that for the first time entrepreneurs have some visibility into the often-murky operations of angel groups. Because Angelsoft powers all the group’s processes, the system can provide entrepreneurs with statistics including how many other companies have applied for funding this month, how long it typically takes the group to review a submission, what percentage of applicants to a group actually get funded, and so forth. For example, check out the profile page for New York Angels, my home angel group here on the east coast, at http://angelsoft.net/angel-group/new-york-angels
Finally, one of the coolest things is that with all the angel groups on a single platform, Angelsoft is now also being used by other parts of the early stage industry, including, as you pointed out, VCs. Over 50 venture funds use Angelsoft to process their deal flow, and many of the leading venture law firms, such as DLA Piper and Cooley Godward, are beginning to use the platform to refer clients to angel groups and venture funds for consideration.
We are living in a fascinating time with fast moving changes in every area, and the expansion and growth of the Internet promises to bring some much needed order to the chaos of early stage funding!
-David S. Rose
CEO, Angelsoft
Chairman, New York Angels
April 22nd, 2009 at 6:44 am
[...] posted Organizing Angel Investors Monday on Up and Running about positive developments in angel funding. David Rose, CEO of [...]
April 23rd, 2009 at 3:47 am
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