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.
Hey David,
The KC Fed just posted Dr. Scott Shane’s slide presentation and white paper yesterday (day of the Omen 6/6/06). It is the newest pair of entries on their presentations page:
http://www.kc.frb.org/comaffrs/ProceedingsPresentations.htm
The most interesting points from the presentation was the diversity and broad range of all aspects of angel profiles. Which is simultaneously the strength and frustration of working with angels.
Best,
Jim, CTEK-Boulder
As an active angel myself, and Chairman of one of the more active angel groups in the country, I can absolutely confirm Dr. Shane’s findings. Realistically, because of the background that’s required to be an angel investor in the first place (among other things, being able to meet the SEC’s “accredited investor” requirements) no angel invests just to make money. The investments are too risky (more than half are bound to go out of business in a very short time) and the time and attention required (if you do it right) too much to make any rational sense.
So it’s for all those other reasons that the survey mentioned that we angels do what we do. Think of it as playing Monopoly with real money, while helping another generation of entrepreneurs, being in the [potential] creation of the next Google, and keeping abreast of the absolute latest in what’s on the technical horizon.
Your suggestion about Angelsoft integrating basic social networking is absolutely on target. The next major release of the platform (coming later this Spring) will have some basic SN features incorporated, and from there things will only get better. The great part is that Angelsoft has now achieved such critical mass (over 130 angel networks on four continents, with many thousands of members) that the challenge for us is not “whether” or “when”, but “how to do it right from the get-go”.
We’d love to get your suggestions and feedback (and that of others as well!), so please feel free to send them directly to our development team at feedback AT angelsoft DOT net!
-David