Growing up in California, I spent a lot of time in the High Sierra at a family cabin. One of the popular games the parents organized was “hunting snipes”: taking the kids out after dark armed with paper bags and flashlights, stomping around in the woods shouting “Here snipe!” while shining the lights into the bags hoping to catch one of the elusive bird/mammal/reptiles when it ran toward the light. At some point in affair, the kids would notice the parents were all gone, as were the flashlights. Alone in the dark, lost in the woods. Panic and crying. Huge laughs from behind the trees!
Trying to connect the right investors to the right deals feels a lot like that. If you are an investor, you’d probably like to collaborate with other investors with complementary skills and interests, and it’s hard enough to find a few of those. Then you have to find deals that fit your profile, and do it as efficiently as possible. Somewhere out there, just beyond the light, is an entrepreneur with exactly the kind of deal you are looking for, if only they’d make themselves known.
For some investors and entrepreneurs, this is no big deal. If you’re well-established in the community, visible and accessible, and have a track record on the appropriate side of the transaction, you’re going to get deals done. You’ll have great access and say or hear “no” a lot. But for the new investor or first-time entrepreneur, it’s a tougher hunt. Perhaps somewhat obviously, this is why organized angel activities survive and evolve: to minimize the friction in the opportunity discovery process. All the rest is really secondary and more sociological than functional.
The most fundamental human organizing principle is a group. Big and small, formal and informal, groups help us navigate life… even when we’re reluctant members. Not surprisingly, organized groups persist as the most common way for angels to engage entrepreneurs. These might be informally managed by a few members, or a large organization formally run by paid professionals, but the principles are pretty much the same: find deals; vet and screen them; discuss, vote, dig deeper. Having groups focused on specific market sectors allows them to be smaller; larger groups allow for more pooling of skills and broader industry reach.
Events are another popular means of getting the party started. Whether monthly dinners, quarterly breakfasts, or annual blowouts, events get entrepreneurs in front of more investors (hopefully), but there typicallyisn’t a structured follow-up process, so the entrepreneur is often left working with a bunch of individuals, individually.
Investor directories and match-making sites are becoming more popular, and provide a great way for investors to search out deals that fit their profile without enduring a lot of social activities.
Finally, angel funds are a small but very interesting means of pooling investor resources and using the skills in the network. There is a fair amount of management complexity to be discussed, but this may provide the best means of getting more potential investors into the mix. I’m going to consider incubators with a co-investment strategy a special case of funds.
With these options, it’s no surprise that investors and entrepreneurs have trouble figuring out where to invest their time. But there’s another wrinkle: almost all of these activities costs money, and figuring out who pays for them is the source of a lot of angst. Before I dig more into that, let’s look at the unnamed participant in the whole ecosystem: the regulatory environment. Queue spooky music…