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

• LLCs: a growing number of groups are even more formal, with the benefits and attributes of pledge funds but with more formal organization. These manager-led and member-led limited liability companies aggregate a set amount of capital, like a venture fund or real estate partnership. They vote as a group, after screening and meeting the entrepreneur, to place $250,000-$500,000 or more from the angel group’s contributed capital. Often members of the group will sit on a company board of directors or make side investments as well. We call this approach the pooled or “Dinner Club” model after our experience in the mid-Atlantic region over the last five years.

There is no one perfect method or means to support local entrepreneurs; all aspects of the private capital food chain should be sought by communities that want growth capital for innovative companies. Technology councils, state economic development organizations, and university incubators alike can support objective studies and subsequently encourage appropriate models with key, local angel leaders.

The crystal ball

Our crystal ball, though still cloudy, seems to indicate an expansion of publicly identified structured angel groups with defined market forms, regional basis and serious intent. Some will be formed by wealthy alumni around university technology and spinouts; some will concentrate on business “clusters” identified within a local economy. Some pledge funds will tap into investors through side car limited partnerships for passive investors and institutions that want to piggy-back on the “smart money” in angel syndicates. And, way off in the haze, we can see the advent of global structured angel communities, tying foreign angels to U.S. structured angel groups in order to share due diligence, portfolio company hiring, capital needs and best practices. Communication breakthroughs, the Internet and social networking tools will come together to shrink time and space, opening new doors for entrepreneurs and angels alike.

We’ve come a long way over the last 10 tumultuous years within the angel movement. Communities will do well to learn how to tap into emerging trends, so that in the next 10 years they can keep the best and brightest of their entrepreneurs and cashed-out business executives close to home.

New Vantage Group is a Vienna, Virginia-based angel group management firm that specializes in innovatively mobilizing private equity capital. The Angel Capital Association is the professional alliance of North American angel groups, supported by the Kauffman Foundation of Kansas City.

« Page 2