Turning the Corner: Trends in Angel Investing (cont.)

But this time, smart money is minimizing risk by benefiting from the brainpower and investments of group angel activity all over the country and learning from past mistakes. And the group process leads members to be more serious about the investment process, to research opportunities more thoroughly, to ask more reasonable shared-risk terms and to parcel out investments over time instead of all up front.

Hundreds of serious angels wanting to give back to their communities and support young entrepreneurs recently have formed dozens of new angel groups to share local deals, due diligence and risk. Angel groups encountered by today’s entrepreneurs have the following characteristics:

• Risk minimization is as important as blue sky dreams.
• Muted exuberance has replaced giddy enthusiasm.
• More mature leadership of angel syndicates means more serious, hands-on help.
• Serious business concepts, not untested business models, are rewarded with successful financing.

Group growth seems to be centered outside major metropolitan areas and is spreading to medium-sized and smaller communities as well.

Types of angel groups

Entrepreneurs seeking strategic help and growth funding will find structured angel groups of three kinds.

• Non-profit networks: loose affiliations of angels meeting every month or two to see presentations by entrepreneurs seeking capital beyond “friends, families and fools.” Many of these exist coast to coast in the United States and they represent a majority of angel groups in Europe. (Many belong to the European Business Angel Network, www.eban.org.) Presenters are not lifestyle small business owners; they are entrepreneurs seeking breakthrough and rapidly expanding opportunities to and are willing to part with dear equity to see their dreams come true.

• Pledge funds: groups of self-certifying, accredited investors who combine efforts under one banner are the majority of structured angel groups (SAG) in this country. These groups frequently have a Web site and small staff, pay dues, organize an efficient screening and outreach process, and negotiate common terms for pooled capital in subgroups of members. This more efficient process helps the entrepreneur raise more dollars through one negotiation and achieves the “value add” of a key spokesperson – representation of those SAG members who opt into this deal. These groups are easy to form, run and locate. Many belong to the Angel Capital Association and are identified on its Web site (www.angelcapitalassociation.org). Others have banded together through the Community Development Venture Capital Alliance (www.cdvca.org).

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