Angel Investing: An Insiders View

Yesterday, I attended “Angel Investing: An Insiders View” which was put on by the Federal Reserve Bank of Kansas City and sponsored by CTEK. In this session Dr. Scott Shane presented the results of his findings after conducting focus groups with various angels in Atlanta, Cleveland, Denver and Philadelphia.

My read is that of the 60 attendees, there were about 30 angel investors and the rest were CTEK affiliates, networkers, or other capital and service providers.

Since I personally don’t understand what motivates half of the angel investors out there, I was curious about his findings. Just as I had suspected, many angel investors did not indicate “financial returns” as their number one reason for investing! Other common reasons were “supporting the community”, “being involved in creating and growing companies”, “finding the next gig”, “learning new things”, “making use of their expertise”, and “personal enjoyment”. I found this section of the report fascinating.

The biggest source of dealflow for angels is their social network and the groups they participate in. The research confirmed this and left me wondering if AngelSoft (or the like) ought to be thinking about integrating a basic social networking capability into their tools. You see this all the time – companies get traction with one or two investors, and suddenly 10 more follow. This is primarily because of trusted relationships.

Overall, it’s an interesting report but doesn’t really quantify anything specifically. What we really need is a work on angel investing similar in nature to great research based books like Startups That Work.

Attendees were given a printed copy of the report, but I was unable to find a full text copy of the report on the web and they haven’t responded to my inquiry about this yet. Maybe if you contact them yourself you can get a copy.

Update: 6/10/06 – Thanks to Jim Pollock who got the Fed to post the study results here.

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