For a conservative investor that will make 2-3 deals a year, it will take 10 years to build such a portfolio. For bullish investors that will make 5-6 investments a year, it will take 6 plus years to do just that, if they will do it full time that is, and 98% of all angel investors will not do it full time. It will take a village to raise a child.
To be successful as an angel investor will require much more than a business and financial background, much of early-stage investing is about people. It is much more about human calculation rather than financial calculation and it calls for a much wider range of skills, one may not be able to possess on its own.
No matter how smart you are, or think you are, or how confident you are in your experience and competencies, doing it alone is risky, to say the least, and on the other hand, it is not much fun. There is a value-added working within a group, it is being described as the “Crowd Wisdom”, the collective attributes, competencies, and experiences which create a larger much more powerful “Brain” power and provide a solid structure of accountability.
What type of groups to choose from:
- An informal Angel Group of investors – a group that was formed in an informal way by a group of friends or colleagues that decided to pool their capital and do it together. They most often will form a legal entity for that purpose in which all the investors are members in that entity and making a collective decision on what to invest an in an informal way, and share the cost of doing business
- A formal Angel Syndication Membership Organizations – A more organized way and most collect membership fees to cover the backroom operation and collectively reduce the cost of doing business – the investors have the freedom to select “Cherry Pick” what deals they are willing to invest in, most groups establish an annual requirement for investment, the syndicate may charge the investors on average 10-15% carry
- Angel Funds – The most structured way. Each fund has a designated fund manager and a deal team that makes the decision on all of the investment and the individual investor does not have a say, yet they get a “piece of every deal”. A typical fund manager charges 2% management fee based on total capital under management and a 20% carry.
About 30% of all successful Angel Investors participate in few if not all of the above, doing independent investment, being a member in syndication, and invest via funds as well.
The ability to share concerns, considerations, and emotions as well as having a “Sounding Board” of some sort to help you navigate through a decision process quicker and much more efficiently. We all have blind spots, in a group, it is more likely you will be able to discover them.
In summary here is the high level of group benefits:
- Have access to much larger brain power
- Lower the cost of doing business
- Have access to much high-quality deal flow
- Speed and velocity of execution
- Increases the probability of higher returns.
The data show that investors that are part of an informal group or more organized syndication out perform independent investing in a ratio of 5:1 over time.