This week, I spoke to one of the longest running and most active angel groups in the country, the New York Angels. For a long time, they were basically the only game in town for seed and early stage funding in NYC. Luckily for all of us, including the New York Angels themselves, the ecosystem has bloomed.
Not only has the NYC ecosystem changed, but the whole ecosystem around early and seed investing has innovated. Smaller funds are thriving, and technology has been brought to bear in a major way with efforts like AngelList. In a world where startups can pick up 750k in from just a couple of seed funds, or crowdsource a bunch of angels sight unseen, what's the role of an angel group? New York Angels is working to develop a more comprehensive role for angels in this new ecosystem, and that work has inspired me to think about the role that angel groups play.
Initially, angel groups were basically setup for two reasons--to connect angels to each other and to pool money for entrepreneurs. An angel belonging to a group could find more dealflow. Since no single angel was going to take up a whole round, it provided for an easy way of finding co-investors as well. Secondly, it was easier for the entrepreneurs to pitch in front of a roomful of a lot of money than one at a time.
The Internet is making finding co-investors easier--and I don't mean just on AngelList. I'm peripherally more aware of more sources of capital and what they like then I ever have been. This is thanks to my participation in social media. I follow other investors on Twitter, Quora, and respond to blog posts--I've even been able to strengthen my ties to other investors through Instagram. Meeting in person is no longer the only way an angel investor can get looped in a network of other investors.
For entrepreneurs, it's quite the same. By participating in social networks, angels are making themselves more findable, and entrepreneurs can do a better job targeting exactly who the most likely investors are. They can examine prior track records, current shared thinking, and even who seems to know who, in order to create momentum. Crunchbase and AngelList provide a ton of research on who has invested in what.
These changes would lead me to believe that simply aggregating supply and demand isn't enough of a function for angel groups to survive. The Internet already does a pretty good job of that.
What role, then, can angel groups most productively play? Here are five things that I think angel groups should take a look at, because I do think they can continue to play an active role going forward:
1) Industry Leadership
In the public stock market, activist investors rally institutionals to affect change in the investing landscape--keeping boards in check. When you speak for a lot of smart dollars, you can help ensure best practices. Angel groups can and should pool their voices to look out for both entrepreneurs and investors alike. On AngelList, you're using a platform--you don't really belong to a group. That platform doesn't really "represent" the views of the investors who use it--but an angel group can speak for its members on important industry issues.
2) A Platform for Visibility
Not every angel investor has time to keep up with a regular blog--but there are vast amounts of uptapped startup and operational wisdom locked up in angel groups that isn't getting out. What if an angel group of 50 people required, as part of it's membership, one thoughtfully written piece of knowledge sharing on the angel group's blog every six months. It could be about lessons learned from an area of expertise. That would be a 100 blog posts a year! Two a week! It would probably be one of the best resources for both entrepreneurs and investors around--and it would take the pressure off each individual investor to have to maintain their own site or come up with something to say more often. I also think it would do a great job of branding the group as a collective of smart folks and generate lots of inbound dealflow. Trust me--two posts a week will fill your inbox!
3) A Network of Company Assistance
Again, if the world goes to "click to fund", we risk losing a little bit of a community feel--of people looking out for each other. Sometimes, there's a value to people feeling like they're on the "inside" of something--a group where there are shared values and mutual support. I experience that with the schools I went to, the place I grew up in--if you tell me you're from Brooklyn, I'm going to do that much more for you, and I know I get that same treatment in return. Similiary, I'm sure that angels in an angel group would go the extra mile to help other companies invested in by their colleagues in the group, even if they didn't have a stake. That not only needs to be made to be part of the culture of the group, but there needs to be structures in place to allow that to happen--and it needs to be marketed to the outside as a benefit. Everyone knows about the First Round Capital "platform". People are aware that recruiting is my strong suit--having placed over 30 people at startups in the last couple of years. What does your group do for its companies? Through what mechanisms? How would you know?
4) Promote Crowded Sidewalks
An angel group can't be an island. I'm reading Jane Jacob's Death and Life of American Cities and, in it, she talks a lot about how promoting as much street level interaction as possible in a city creates safer and better neighborhoods. If I was an angel group, I'd be trying to figure out how an entrepreneur couldn't take two steps in my city without bumping into someone from our group. If the only interaction you have with an angel group is during pitch day, you're going to miss out on the opportunity to create a thriving ecosystem around the group. What does that mean? It's about getting out there to other events--speaking as well as attending. It means having a diverse set of business relationships. You should be active fund investors as well as angels--building up relationships with venture capitalists to both source deals, find co-investors, and pave the way for later stage investments. Angel investors should think of their participation in an angel group as a launching pad for lots of other investment community activities, not a box to check as their lone participation in the ecosystem.
5) Be fun!
The best business relationships often stem from authentic personal relationships. Are the people in your angel group real friends? Do they go out to dinner together? Are they sports fans? Skiers? Are they members of the same food co-op or school board? This is something you can't replace by investing by click--and it helps promote of active dialogue about more than just investing. The more you talk about things that aren't startups, the more likely you are to recognize the real game changing ideas when they don't look like the startups you've invested in before. I'd want to build my angel group with a fun bunch of Renaissance people, diverse in background, interest, etc.--free thinkers. That's how you fight group think and make the experience of participating in these groups an interesting experience for both investors and entrepreneurs--and that's far more compelling than just a way to aggregate supply and demand.
Got some comments from readers...
Glen Hellman wrote "No PretAngels. Weed out the tire kickers, non-investing members of the group. Especially the group members who see their membership as a biz development opportunity. http://www.drivenforward.com/blog/pretangels-sharks-in-angel-clothing"
Christopher Mirabile wrote by e-mail...
"I think there are some additional benefits to individual angels and some additional roles groups need to play that don't get mentioned enough (or ever) - the education groups provide in how to be a good investor is key (having deal flow on AngelList is useless if you don't know what you are doing as an investor and don't know how to be helpful to a company), recruiting new angels and promoting the formation of capital, encouraging members to be active in the community, etc. In a lot of ways as the masses are poised to pour into crowdfunding, the role of groups is more important than ever - increasingly the Angel Capital Association is focusing on professional accredited investors - company builders in short."