Angels Have Always Worked Under the Radar

Angel Groups in the USA now account for 50% of all Angel investments and invest in about 15 times the number of ventures invested in by formal venture capital funds. Furthermore, they achieve a good return on their investments. Angel Capital Education Foundation reported that, for the 539 Angels surveyed across 86 Angel Groups they reviewed in 2007, the average return on the 1,130 exits of that year was 27%. However, 20 years ago you would have had difficulty finding any Angel Groups in the USA. Angel investment in the USA has dramatically changed over the last decade and is likely to become increasingly important in early stage private equity financing.

There are several reasons why this change has occurred, not least of these being the growth in the number of entrepreneur millionaires generated by the computer, internet and biotech booms of the past three decades who make up the bulk of the participants. Venture capital funds have moved up market and away from funding early stage ventures leaving a gap to be filled by Angel investors. However, probably the most significant factor has been the rise of the public face of angel investing – the Angel Group.

Angel Groups often have a website

Historically Angel investing has been the province of a few wealthy entrepreneurs and the private family investment fund. Angels have shied away from publicity and worked within their own communities and with their own private networks. Entrepreneurs seeking Angel finance had to work through a myriad of contacts to find an Angel. Even then, the Angel may not have the right experience or interest in their specific sector or venture. While there were informal Angel syndicates, they still operated under the radar and were difficult to contact.

What we have seen in the USA over the last decade is an explosion in the number of active Angels Groups. What was once a small portion of all Angel activity is now about half of all Angel investments. Angel Groups are well organized, often have a full time or part time administrator, usually have a website and host a formal program of meetings, entrepreneur presentations and Angel education workshops. Over 350 Angel Groups belong to the Angel Capital Association which fosters best practice, provides a library of materials to help Angel activity and host an annual conference for Group members.

Formal Angel Networks are the new face of angel investing

Australia is running about 8 to 10 years behind the USA in the development of a formal Angel Group network but is fast catching up, partly due to the assistance and advice from other Angel associations around the world. Last year the Australian Association of Angel Investors (aaai.net.au) held its inaugural conference. There are now over 10 formal Angel Groups which belong to the Association with more being formed all the time. Even small groups can quickly go public with the help of an internet based angel group administration software package called Angelsoft which is provided free to all angel groups worldwide. This software provides facilities for organizing meetings, submitting investment proposals, soliciting investment from members and tracking investee firms.

For entrepreneurs seeking Angel finance in Australia, the difference in the last few years is remarkable. For the first time there is a range of Angel Groups who have a public presence. Not only can you now find a local Angel Group but you can contact them directly, find out what type of ventures they are interested in and submit an investment proposal. No longer do you have to work your network to find an Angel, you have the ability to connect directly to 20 to 50 Angels. Even if you are in a highly specialist field, chances are you will find a local Angel with an interest in what you are doing, or perhaps, actual experience in your field. Since Angels are now better networked themselves, they can also connect with other Angel Groups to tap into experience, raise additional investment or find an Angel who wants to take an active role in some part of the investee’s development plan.

Angel Groups make the task easier

This public presence has considerable benefits for the Angels themselves. No longer do they have to hide what they do for fear of being approached for investment by people they don’t know. They have immediate access to a range of specialist skills from other Angels, can share the due diligence activity and can spread their investments over a much larger number of investee firms. If they wish, they can be passive investors in some ventures and take an active role in others. They can tap into a resource base of standard agreements and have Group access to IP, legal and accounting services. Perhaps the greatest benefit of Angel Groups is to allow novice Angels to participate in investing while learning how successful Angels select, negotiate, manage and harvest their investments.

We still have a long way to go to catch up with the USA in the level of Angel participation in early stage ventures. At the USA rate, we would have over 25 active Angel Groups with more than 1,250 active members investing in about 350 ventures a year. On behalf of Australian entrepreneurs, I hope we get there as soon as possible. If you consider the impact this would have on job creation, wealth creation and export income, it would be great news for our policy makers. That being the case, lets hope that they get some Government support to make it happen.