Taking flight: angel investors are flocking together to your advantage

Entrepreneur, Oct, 2004 by David Worrell

AFTER WEATHERING TOUGH economic times alone, angel investors are banding together and joining angel groups or funds that can help them screen deals and mentor entrepreneurs. They also have a national association: the Angel Capital Association (ACA, www.angelcapital association.org), which has 30 member groups. Sponsored in part by the Ewing Marion Kauffman Foundation of Kansas City, Missouri, the ACA is compiling data and best practices from, and about, angel investors.

According to the informal results of a survey of the ACA's member groups, each group put an average of $1.85 million into an average of 5.3 investments annually. The average member group is made up of about 50 individual angels, so this translates to an investment of $36,803 per angel, per year. If you're lucky enough to be invited by a group to present at its meeting, expect to be one of two or three presenters, each given 10 to 30 minutes to showcase an investment opportunity. Speak loudly, as most groups mix presentations with a meal--more than half of those that responded meet for breakfast or dinner.

Deal terms vary, but most angel groups report buying 20 to 30 percent of a company's stock when making an investment. If you want better terms, be prepared to justify your offer. "Of course, 99.5 percent of investing is still done outside of angel groups," says Phil Borden, CEO of Active Capital, a Rancho Palos Verdes, California, online matching service for angels and entrepreneurs. "We're targeting unorganized angels and angel groups," says Borden.

Borden advises entrepreneurs to do the same. Individual angels are still likely to be the best sources of seed and early stage money. Angel groups can bring more money and other resources, which makes them more effective at later stages. "Angels used to get involved pre-revenue," says Borden. "Now they also get involved later, as revenue is starting to ramp [up]. Many are even investing in second rounds."

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