Just start a fund.
Skip the angel group.
When the seeds of companies turn to blossoms, any entrepreneurial ecosystem will want to organize capital.
It is a logical step. Invest money, accelerate businesses, reap rewards, reinvest proceeds. If done right, a capital ecosystem kicks of a virtuous flywheel.
So where is that capital to kickstart the flywheel?
The community inventories its members and discovers plenty of potential investors amongst its ranks (note to self - save accreditation rule rant for another newsletter).
The angel group initiative begins.
With emphatic community buy-in, a selfless community leader pours themselves into this effort. They’ll fundraise for the events, practice the pitches, schedule lunch after lunch to recruit more investors, build a website. All the pieces will get put into place.
Come “launch, they’ll have a roster of enthusiastic investors excited to knight the community’s next great company. Companies start pitching. Asks go out.
And then what happens?
Nothing.
At least in terms of real results - capital flowing into companies.
Meanwhile, the community’s single most precious asset, founder time, got squandered. They built investor funnels, practiced their pitches, scheduled lunch after lunch. Local funding is often the most aligned, so founders often prioritize raising with the new angels-to-be.
And then “something comes up.” Over and over and over again.
99% of angel investors have other priorities, be that their own companies, their family, or just playing golf 100 times per year. That is okay; it is just the nature of commitments and being busy.
At best, the checks are smaller and slower than anyone expected. At worst, and all too often, no checks get written.
Instead of kickstarting that virtuous cycle of capital flow, the community’s vibrancy and shared narrative is now bottlenecked by the collective priorities and schedules of a group who by definition doesn’t need the money and likely doesn’t have the time.
The community’s momentum and credibility will take a hit.
Angel investors are an important component of a healthy capital ecosystem. They are not going to be the spark.
To Be Fair…
There are plenty of angel investors who step up. This is the devil’s advocate talking (from experience).
I’ve seen individual investors make game-changing connections, lead boards, and most importantly, step up and write checks. They are absolute champions for founders and the community (you know who you are).
They are the exception.
On the whole, angels are great funding followers and ecosystem amplifiers, not leaders. And that is okay. In fact, it is great.
If you want to kickstart your capital ecosystem, start a fund.
One entity with one leader deploying capital will create more momentum for your capital ecosystem.
Community leaders are the most invested yet underappreciated players in most capital ecosystems. They’re likely already doing a lot of this work anyways - mentor connections, events, email updates, things VCs call “value-add” on their site. Now, they have a way to monetize and amplify their tireless efforts.
Early stage investing is not a matter of consensus anyways. Even for the companies which don’t get funding, the time gained from one swift “no” from a fund compared to ten slow angel “nos” is priceless.
While writing checks is not business building, it sets the tone for others to join.
So where should the fund capital come from?
The short answer - wherever possible. There is SSBCI, state programs, economic development organizations, foundations. These are likely the anchor checks.
That said, the ideal answer - as many of your community’s angels as possible.
While every angel intends to write all the checks, attend all the events, review all the decks, and mentor all the companies, they’ll appreciate someone else stepping up to do this work. In fact, they’ll do it better if they are already invested via the fund.
From there, the community leader, now a GP, is tasked with creating lower bars for angels to clear to get involved in an already happening capital ecosystem.
Oh, and the door is always open for an extra check from the extra excited angel on every fifth deal that resonates and fits with their experience and schedule. In fact, after a few of these, coinvestment gets normalized. All of a sudden, the angels are talking to each other about their investments. They start to feel the social pressure of chipping in.
And all of a sudden, they start writing more checks, even into companies the fund doesn’t back. They meet on their own. They meet founders and introduce the fund to them.
And just like that, ironically, the angel group is born.
Is raising a fund harder than getting a few checks written here and there? Yes. Does starting a fund introduce many of the downfalls of venture? If you’re not careful (carefully reading this newsletter that is!). Is there room for innovation to do a fund right? Tons.
These are all solvable problems.
Despite the critiques, starting the capital ecosystem with a fund is the fastest way to get capital flowing. From there, people will want to be a part of the progress.
Even better, start an innovative, flexible fund. By doing so from the start, you become the standard bearer of your community’s capital norms.
Innovative Finance Quick Hits
if you are solving a coordination problem and are already connected to angel group, this could work and work well. Also, there are great new networks to plug into, like https://www.makingblackangels.org/, https://pipelineangels.com/ which are both under Jill Johnson's https://www.weareifel.org/.
If you aren't already in contact with a group of active angel investors writing checks, be prepared for a 18-48 month fundraise to launch a fund that you have discretion to quickly fund entrepreneurs with just management-level (GP) authority.