October 17, 2006
Angel Investment Organizations
Posted by Darian Ibrahim

Vic and Bill Sjostrom both respond with great questions to my earlier post on angel investing. My post claimed that angel investment differs dramatically from venture capital investment, with angels taking relatively unfavorable terms. Vic wants to know whether angels act more like venture capitalists now than they used to, while in Bill’s experience, most angels do in fact invest on VC-like terms.

There’s a second piece to this puzzle that may explain how Bill and I can both be right. That is, while the traditional, informal model is still very important and explains some angel investment, a new breed of angel investor has also emerged. Rather than flying solo under the radar screen and investing informally, angels are increasingly joining “angel investment organizations” to facilitate funding opportunities. (Silicon Valley's Band of Angels was the first of these.) These organizations provide an audience of angels to which local entrepreneurs can pitch their ideas, after which interested angels can jointly invest in promising ventures. My research on these organizations is in its infancy (members of angel investment organizations: if you’re reading this, please contact me!). But my understanding is that the joint investments that arise out of these organizations do look more like venture capital deals than traditional angel deals. This makes sense – as Bill suggests, the “trust factor” may be lower, and the transaction costs justified by the larger amounts invested. So I think we’re seeing an important shift in angel investing, although the traditional model persists and still needs explaining…

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