Thursday, May 5, 2016

"VC Angels"--Angel Groups become the New Venture Capitalists

As crowdfunding becomes more prevalent some angel groups are repositioning themselves away from the crowdfunders as a new type of venture capitalist.  Those groups who have experienced investors and can tap the expertise in their group have the makings of a VC firm with a strong support base and an internal funding source.

These angel-based VCs are foregoing the usual application/screen/pitch/invest model used by current angel networks.  Instead, they spend their effort on searching for the best deals that fit the expertise of their group.  Most angel groups which still use the "Submit your application here" model don't see the best deals because those deals are being picked up long before they make it through the screening process.

The angel-based VC is typically led by 5 to 7 experienced investors who in most cases have a professional background in the finance world.  They leverage the resources of their angel group for expertise on managing the portfolio companies -- sitting on boards, monitoring progress, helping with sales, etc.

In the past venture capitalists passed on many deals because the VC firm had limited bandwidth to sit on boards and follow up with the portfolio.  "VC Angels" can have large networks of investors who contribute to the portfolio with their time in addition to their dollars.

A fund model would allow for sharing the results of all the deals rather than individual financings. Members of the group would be required to participate in screenings and follow up activities to continue vesting of their shares in the group fund. This model provides diversification to the members and ongoing contribution of support to the portfolio as well.

With the shift from a geographical focus to a vertical focus, angel groups could form in specific areas such as mobile apps, healthcare, fintech, cybersecurity or others.