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5 conditions that allow angel networks to flourish
Veggies
My wife and I recently started our first vegetable garden.
Everything died.
So we tried again - but this time we made sure to check a few things:
Was the timing right?
Were we planting the right vegetables?
Did we have the right soil?
Were we properly watering and removing weeds?
I’m proud to report Kazlow garden V2.0 is flourishing. Ask me in a month how the green beans taste.
Angel networks, like our little vegetable garden, require certain conditions to grow.
Let’s take a look at the 5 most important ones.
The Observer Express
Don’t have time to read the entire post right now? No worries, here are the main points:
Angel networks require access to two types of customers: a pipeline of entrepreneurs seeking capital and a pipeline of angel investors looking to invest.
Angel networks also require access to three key resources: effective leadership to provide strategic direction, effective operations to manage deals and members, and effective diligence to make decisions.
5 Conditions for Growth
Every angel network I’ve come across requires access to the following 5 things to grow:
Access to Customers:
A Pipeline of Entrepreneurs Raising Capital
A Pipeline of Members Seeking to Invest Capital
Access to Resources:
Effective Leadership
Effective Operations
Effective Diligence
Take away any one of these conditions and the network is bound to fail.
Let’s take a closer look at each one.
Access to Customers
Effective angel networks produce closed deals. (More in this previous post.)
Closing a deal requires the presence of 2 key parties: the investor and the entrepreneur. Kind of obvious, but without both, a deal cannot happen.
How do angel networks attract and access these key parties?
By offering a clear value proposition to each one.
Here’s the fundamental Angel Network “pitch” for each type of customer (in the form of problem, solution, and “what’s different”).
Customer 1: A Pipeline of Entrepreneurs Raising Capital
Problem: Startups and the entrepreneurs that run them need capital to grow, but have limited time and limited networks of accredited investors they can pitch.
Solution: Aggregate many accredited investors explicitly interested in startup investing for regular pitch events.
What’s Different: Efficient top-of-funnel fundraising, brand exposure, established support process for investment if there is interest.
Without a steady stream of deals coming in, there can be no deals done. Establishment of a “brand”, a network, or other method of quickly tapping into streams of deal flow is essential for an investor community to grow.
Customer 2: A Pipeline of Members Seeking to Invest Capital
Problem: Due to limited time and limited networks, finding good deals is hard.
Solution: Aggregate many accredited investors to share networks and resources. Establish processes to focus attention on the best deals.
What’s Different: “Done for you” experience with ongoing support, opportunity to contribute to deals + network with other members, each group’s “secret sauce.”
Without a steady stream of investors deploying capital, there can be no deals done. Engaging and attracting new members, retaining existing members, and ensuring active participation is a required condition for growth.
Access to Resources
To serve both of these customers well and consummate deals on a regular basis, Angel Networks must have access to 3 essential resources: effective leadership (the driver), effective operations (the doer), and effective diligence (the decision-maker).
In the beginning, these resources are often centralized in one person. They pretty much do everything for awhile.
However, as the community grows it becomes necessary to “delegate and elevate,” leading to a wider distribution of work.
Resource 1: Effective Leadership - The Driver
Without effective leadership, angel networks - like any other organization - are destined to fail.
Leaders help answer questions for the group like: “Where are we going? Why? What is our mission? Our culture? What does “good” look like?” and plenty more.
They make things happen.
They serve as the face of the network at meetings, events, and more.
They’re typically the ones members and entrepreneurs know best.
These leaders are generally (though not always) prolific investors themselves. They’ll often recruit the first angels to join the group, and as it grows they make strategic decisions that shape that growth.
Many times this leadership function is fulfilled by a board of directors, a committee, or some other mix of individuals with a variety of specific responsibilities.
The main takeaway is that leadership and strategic direction are essential for driving the network forward, and they directly shape the other two resources.
Resource 2: Effective Operations - The Doer
Without effective angel network operations, nothing gets done.
In a great network, lots of startup applications go in. Only a few come out on the other side for investors to consider. That doesn’t happen without a ridiculous of work.
An effective process with the right people driving it are a fundamental requirement for community growth.
Leadership drives and influences these operations. And diligence efforts (which I’ll talk more about in a moment) serve as a key workflow input.
There are 3 basic components to effective angel network operations:
Deal Management (Angel Ops) This is what Angel Ops is all about. The framework is designed to visualize the deal management process and help community operators think through what “world-class” looks like.
Member ManagementThere are a host of processes and structures required to fully engage and manage members over time to ensure deals get done and members are well-served.
Administrative ManagementThese are the processes and functions required for any entity to function, such as accounting, IT, legal, etc. These are essential for the rest of the network to function.
Resource 3: Effective Diligence - The Decision-Maker
Diligence is all about making decisions, and without effective diligence, decisions are put on hold or made poorly.
Effective diligence is a required condition for angel network growth.
“What do we need to know to make a decision about this opportunity?”
As a deal progresses through each network’s process, the level and intensity of that diligence increases.
For example, all the diligence required for a pre-screening review is a skim of the initial application. If it seems to pass general criteria for that point in the process, it gets kicked to the next step.
In contrast, the intensity of diligence is much higher if there’s $250K in interest from 10 members and we’re launching a deep-dive review of the company’s financial position.
What does and does not pass (as well as the method of making that decision) at each point in the process is set by network leadership & operations.
But those team members are generally not involved in every deal - there’s just too many for that to be realistic. Therefore, most angel groups rely on a combination of students, volunteers, network staff, or professional services to tackle most diligence tasks to enable the group to make decisions throughout the process.
One could argue that this is a part of the operations function, but I think there’s a benefit in breaking it out as a separate component. Diligence is one of the main bottlenecks in the typical angel network process and without it, the network fails.
Final Thoughts
All the angel groups I’ve been exposed to rely on the 5 conditions we discussed to grow. While there are endless nuances and intricacies we could explore, I hope this succinct breakdown serves you well.
What do you think?
What other conditions are required for angel network growth?
Weekly Observations: 3 Lessons Learned
Deadlines are a gift - they help draw a line in the sand at “good enough”.⏰I’m working on several creative projects right now - an e-book, some flyers, banners, multiple landing pages, etc. I could iterate endlessly on all of them if it weren’t for the reality that I’ve got due dates on every single one. One of my professors used to say “Don’t let perfect be the enemy of good,” and deadlines are very helpful in that effort.
Make your objectives and key results clear to everyone in the organization.🪨I’ve been reading “Measure What Matters: OKRs: The Simple Idea that Drives 10x Growth” by John Doerr. It’s fantastic. But one of the simplest ideas that struck me this week was the need to publicize each person’s focus - from top to bottom. We’ve leveraged the EOS idea of “rocks” from the very beginning, but this is a nuance we’ll be implementing very soon.
Be prepared - always.☕This week Dani and I (and our 2 dogs) drove through Austin on the way to visit family for the weekend. We stopped for coffee at the best coffee shop in the world - Merit Coffee - to get a bit of work done and enjoy the weather. Somewhere between the Subaru and the patio table I looked up and found myself laughing at the smallness of the world. A friend I’ve done some work with and who I had just met with virtually the day before was having coffee with someone who was new to me. But as it turns out, that person works closely with another connection I have been meeting with over the last few months about a separate project. Kinda crazy, but lesson learned - always be prepared, you never know who you might run into.
Weekly Links: 3 Things I Found Interesting
Thanks for reading, have a great week.
-Andrew
If you enjoyed this post, please share it with a friend, colleague, or anyone else who may benefit.
P.S. - I recently finished creating The Angel Network Toolkit: 90 Resources for Cultivating a Thriving Community of Pre-Series B Investors, and I’m sharing it with anyone who refers a friend.
How did I do this week?
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where our mission is to cultivate flourishing specifically through efficient and collaborative early-stage diligence. I'm a proud husband, grateful father, and honest friend. My love languages include brisket, bourbon, and espresso.