Angel Groups Bring Entrepreneurs and Investors Together

For business owners, the phrase “angel investor” has a nice ring to it. It makes them think of both money and friendship, two things business owners never have enough of. But not many small business owners get to experience this relationship because connecting with an angel investor is not easy.

By nature, angel investors, also called “high-net-worth individual investors” or “accredited investors,” are a quiet bunch. They don’t typically want business owners lined up at their doors begging for cash; so they fly under the radar as much as possible.

But angels are getting organized. Groups as small as five or 10 angels, or as large as 150, are joining to support the entrepreneurs in their communities. By some counts there are more than 300 such groups in the United States.

Angel groups offer both investors and entrepreneurs some serious benefits:

• Bigger piles of money: One danger of relying on an angel investor is that he or she may run short on cash at a critical moment in your business development. Angel groups can overcome that challenge by getting multiple investors on board.
• Better due diligence: Investors can’t be experts at everything, but a group of investors can do a much better job of filtering and selecting small businesses that will succeed.
• Deeper operational resources: Not all investors want to be involved with all their investment companies, but groups of angels can act more like a venture capital firm by giving advice and guidance from multiple members of the group.
• Education: Entrepreneurs and investors both win when they understand the risks and terms of investment. Angel groups often conduct low-pressure training sessions that teach finance fundamentals.
• Access: The key problem for angels is exposure. They do need to find you, but they don’t want you to know who they are. In a group this becomes easier because entrepreneurs can contact the group without pressuring any one individual.

To make things easier, most local angel groups now belong to a national group. The Kauffman Foundation for Entrepreneurship out of Kansas City organized the Angel Capital Association, which is now an independent group. This is a huge benefit to entrepreneurs because the ACA publishes its list of members. The ACA boasts more than 146 groups and more than 7,000 individuals as members. The education and guidance provided by this organization has helped angel groups standardize their business review and investment processes while reducing risk to both the angel and the entrepreneur.

Angel groups, or clubs, should be composed of truly accredited investors. There are strict U.S. Securities and Exchange Commission laws about this that entrepreneurs should understand, and a well-run angel club can help you be sure that the investors are properly qualified.

There are many different kinds of groups that from the outside may look like angel groups. Be careful. There are online and offline brokers, consultants, and trainers who, while helpful, are not themselves investors. There’s nothing fundamentally wrong with using these groups, but do so with your eyes open and your expectations low. In the meantime, educate yourself about all the various types of angel groups, networks, and clubs and learn how to find an angel investor.