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Angel Investing and Playdates

By Dan Mindus  •  Jan 22, 2014

When I jumped into angel investing, it never occurred to me that it would be good for my two year old’s social life.

In 2008, fresh out of business school, I was hired to run deals for an angel-investing club in Washington, DC. I was thrilled. Entrepreneurs are some of the best people I know – they're a brilliant and passionate group, with one of the lowest percentages of jerks anywhere in the business world. And here I had the chance to spend my days helping finance extraordinary startups while working with a large group of people whose professional success allowed them to invest in high risk, illiquid ventures. Great stuff. But I wasn't looking to expand my social circle. I had plenty of friends, having lived in DC before business school, and besides, I was the youngest person in the room by 15 years.

By 2012, I had transitioned to an early stage fund and had learned enough from my many mistakes to flatter myself that I was no longer “dumb money.” That summer, having finished a yearlong stint teaching a class on venture capital at the University of Maryland, I was itching for a new side project. One evening I attended a meeting intended to gin up interest in a new angel-investing club. At the end of the discussion, someone made an observation that I will always remember. “There’s a bar bell distribution of ages in the room,” he mentioned. I looked around the room and noticed about 15 people who looked to be older than 60, and three of us in our 30s. The meeting broke a few minutes later. On no more than a hunch I grabbed the two other thirtysomethings and asked them what they thought about the idea of starting an angel group for younger people. One of them immediately responded: “Where do I sign up?”

I spent the next few weeks on the phone and slugging coffee with DC tech folks in their 20s and 30s who I thought might have an interest in joining a new angel group. They fell into two categories: people who were already doing some angel investing but had limited deal flow, and people who wanted to do angel investing but hadn’t found the vehicle for it. One comment captured the almost universal enthusiasm. “If at the end of this conversation you’re going to ask me if I want in,” someone said a few minutes into the discussion, “the answer is yes.”

It’s true that ideas are a dime a dozen and execution is everything, but the market demand for a young person’s angel group was so great I figured I’d need monstrously poor execution to mess it up. About five weeks after having the idea, 23 people squeezed into a conference room built for 15 to hash out our new angel group. It was incredibly heartening when, at the end of that meeting, all 23 volunteered to participate in committees to help bring "40 and under" angels to life.

We were off to the races and all set to lose a bunch of money. Yes -- lose money. There’s no truly reliable data on returns to angels, but I can say with some confidence that the vast majority of investors lose money. I’m not saying they lose money on a risk adjusted returns basis, or compared to the stock market, or relative to inflation. I’m saying they invest a dollar today in exchange for 60 cents in ten years. How would our group, yet to be named, avoid that fate?

The ability to discern a likely winner is a small part of what distinguishes early-stage investors who make money from those who don’t. What really drives investment returns is access -- the ability to invest in companies that are widely considered attractive and therefore have more demand for their equity than available supply. So how do you get an invitation to the party?

The natural strength of an angel group is its members. Most angel groups have far more investing members than venture capital firms have investment professionals. That should count for something. So we came up with a rule: if ten or more members of our group put money into a company, then it becomes a “portfolio company” and all of our members are obligated to help out, whether or not they invested. Most importantly, that means making introductions when asked. If your company is spending three years injecting rats with a new drug to see how fast they croak, then introductions might not be that important. But for some companies networking is critical to success. We now have seven portfolio companies, and they have benefited from fantastically useful introductions by our 73 members.

The mission of our group is “striving to be the most entrepreneur friendly angel investors in the world.” I am a member of FundersClub, an online venture capital firm. I am also a member of the FundersClub Panel, an advisory board of sorts, and I have observed how highly FundersClub values a fast and seamless investment process for the entrepreneur. As it’s turning out, most of our members are entrepreneurs themselves. Helping their peers is in their blood—and it’s part of the fun. One of our members recently called our group his “tribe.” He said our members “are the people who will help me with this company, and the next one, and the one after that.” He’s on his third startup, and at 36 is more than 20 years younger than the average member of an angel group, according to the Angel Capital Association.

We are becoming a community of peers. That’s what happens when people with similar interests at similar ages engage in a worthwhile enterprise together. Our members drink late together, and go to their kids’ birthday parties. They start businesses together and get to know each others’ spouses. Several have told me that they probably would have left Washington DC for the Bay Area or NYC if it weren’t for our group.

I just got back from the house of very good friends. It was our regular Sunday pizza night. The kids played together. We talked about vacation plans and elementary schools and a great new seafood place. Between the happy squeals of toddlers, we also scheduled a conference call about how to structure what we believe will be our eighth group investment. Family pizza night is with a member of our group, of course...which by the way, we named NextGen Angels.