Aug 24 2009

An Angel Investor Group Move That Makes Me Vomit

I’ve personally made around 75 angel investments during two periods of time – 1994 – 1997 and 2006 – 2007.  The first was the period of time after I had sold my first company but before I co-founded what become Mobius Venture Capital.  The second was between the end of the “investment period” (the time when we could make investments in new companies) for the Mobius Venture Capital 2000 fund and when my partners and I raised our first Foundry Group fund in the fall of 2007.  Per my agreements with my limited partners, I can’t make angel investments during the time period that I have an active fund in the market.  So – I’m “out of the angel investment business” (although I can make a follow on investment in any company that I’ve made an investment in.)

I give you this background so that my statement below has some credibility.  I think it is grotesque that an organized angel investor group would charge an entrepreneur to present to their members. This is in response to the article I read over the weekend in the New York Times titled Angel Investors Become Less Available where this practice is described.

While there are some good and useful angel groups, there are plenty of bad ones.  And many of the members of organized angel groups aren’t actually angel investors.  I’d like to suggest that to “qualify” as an angel investor, you have to have made at least one equity investment of at least $25,000 in the past 12 months.  If you haven’t done this, you can’t call yourself an angel investor.

Now, I realize that running an “organized angel investor group” costs something > $0, but the number shouldn’t be very much.  And – the cost of this should be born by the angel investors that are members of the group, not by the entrepreneurs.  Does anyone else out there think having the entrepreneurs underwrite this is absurd?  It’s just completely backwards in my opinion.

I have an incredibly high regard for a number of angel investors that I’ve gotten the chance to work with – both as an entrepreneur, angel investor, and VC.  The great ones know that their purpose is to help entrepreneurs get up and running with a secondary goal of a long term economic return.  But – the economic return can’t possibly be there unless you are an active angel investor (e.g. your chance of having economic success by making one angel investment over your angel investing lifetime is extremely low – more about this in another blog post.)

In the mean time, I’d like to encourage any angel group that charges entrepreneurs to present to them to reconsider their position.