editione1.0.1Updated September 19, 2022
You’re reading an excerpt of Angel Investing: Start to Finish, a book by Joe Wallin and Pete Baltaxe. It is the most comprehensive practical and legal guide available, written to help investors and entrepreneurs avoid making expensive mistakes. Purchase the book to support the authors and the ad-free Holloway reading experience. You get instant digital access, commentary and future updates, and a high-quality PDF download.
There are a number of reasons it is beneficial to join an angel investing group.
An angel investing group (or angel group) is a syndicate of angel investors that collaborate on deals. These groups can be large and formal (like Seattle’s Alliance of Angels, which has over 140 members as of this writing), or small and informal (especially when not based in a major metropolitan area). They can help green investors learn the ropes of angel investing, improve access to deals, and share the work and potential costs of due diligence and negotiations.
There are over 400 angel groups spread across the U.S. and Canada according to the Angel Capital Association, which maintains a directory on its website. You might also be interested in the Angel Capital Association’s FAQs About Angel Groups.
important If you want to educate yourself before joining a group, or if you can’t find a group that aligns with your interests or investing goals, then this book will go a long way towards getting you up to speed on the process, terms, and other topics that will give you the confidence to move forward with your angel investing!
You may also decide to invest as part of an AngelList syndicate. Make sure to do your due diligence on the syndicators.
It is easy for entrepreneurs to discover the local angel groups, so being part of one means you will likely get exposure to a regular flow of deals. Angel groups tend to be known in their community and entrepreneurs will seek them out because it is an efficient way to get in front of a large number of angels. As a member, it will be easier to see a lot of deals if you attend the angel group’s regular meetings where some number of entrepreneurs will pitch their companies to the assembled group of angels. Additionally, most groups have a screening process, so the main membership group will only invest time in looking at deals that have passed the initial filtering process. If you’re not a member of an angel group, there are still lots of ways to see deals, which we cover in Finding Opportunities.
20–40 hours of due diligence per company is recommended;* it’s nice to be able to share that workload among a group of interested angels. Within a larger angel group there is almost always someone who is expert in the specific field that a startup is engaged in, whether that is a medical device or a social media marketing tool. Having that domain expertise in the diligence team brings insight about customer pain points and behaviors, competition and the ecosystem generally, distribution and pricing, and a host of other topics that would otherwise take significant effort to understand.
There will almost always be experienced angel investors in a group, and you can benefit from their knowledge and wisdom if you let them lead the terms negotiation for your first investment or two. They will have a sense of what is customary in the terms and which terms are worth fighting for. Those angels can act as mentors when you are ready to lead a deal and negotiate terms yourself. This book will bring you up to speed on the deal terms for the most common types of investments, but it is still useful to have guidance on the ground when going through the process.
An angel group is a great opportunity to network with other successful business people who have a passion for angel investing, and you can learn from their experience. You will see a lot of deals, which will provide a valuable perspective on the range of investment opportunities. You will begin to learn what a great opportunity looks like versus a more risky one, what a complete team should look like, how much traction is an indication of product/market fit, and so on. You can participate in due diligence to learn that process even if you do not plan to invest in the company. Some groups check in on the companies that pitched a year or two ago and present updates to the group. This provides great insight as to why some companies fail to reach their goals and the types of pivots that may happen. This learning enables you to ask the right questions the next time you are doing due diligence on a similar company.