What are angel groups?
“Angel groups” are groups of angel investors who regularly convene as a group, usually in-person, to evaluate and invest in startups. The practices of specific angel groups often range widely.
Angel groups typically focus on a concentrated geographic region, typically a single state or region of a state, in some cases a particular city or metropolitan area. Occasionally angel groups will focus on an industry sector in addition to or rather than a geography. The goal is to use the group members’ local or specialized access and knowledge to the group’s advantage, and to convene a group of similarly-minded individuals who nevertheless may bring a diverse set of skills, expertise and experiences. Angel groups typically invest at the seed stage of a startup, and usually do not participate in the Series A or later stages, although this can occur.
There are at least 200 angel groups in the US, representing over 12,000 individual angel investors. The largest angel group industry organization is the Angel Capital Association. As a point of comparison, the Small Business Association estimates that there are roughly 250,000 individual investors in private companies in the US, suggesting that roughly 5% of angel investors are members of an angel group.
As can be stated for every type of startup investor, angel groups are not without controversy. Some entrepreneurs have had adverse experiences with some angel groups, with complaints including unusually prolonged and time-intensive evaluation periods, insufficient check sizes, investment terms that may not be correlated with market terms, and insufficient domain experience. This can have the effect of producing adverse selection, where certain entrepreneurs avoid raising from angel groups (for example, one well known accelerator/incubator in Silicon Valley advises all of its entrepreneurs to avoid raising from any angel group). Meanwhile, some angel investors feel they are not gaining adequate exposure to the best opportunities via their group, to opportunities beyond their group’s geographic area, that the ability of their group to conduct adequate due diligence on every deal is limited, and that group membership can be more time-consuming than desired. It is in the interest of the leadership of affected angel groups to address these issues. Select online investment platforms like FundersClub have prioritized avoiding these issues and co-investing only with groups that avoid them as well.