7. Angel Groups (Michael Gruber)

Download_v2Nick Moran Angel List

Michael Gruber joins Nick on The Full Ratchet to discuss Angel Groups, including:

  • What is an angel group?gruber
  • What are the key functions of the Angel Group Leader or Coordinator?
  • What value does an angel group provide to its investors?
  • When investments are made, how are they typically organized?
  • We’ve discussed previously how VC’s typically make money via a yearly mgmt fee and a % of fund returns called carry or carried interest…. What’s the economic business model for Angel Groups.
  • What differentiates one angel group from another?
  • Why do investors join an angel group, as opposed to angel investing on their own or investing in a VC fund?
  • For those new to start-up investing, what advice would you give on how to choose the right angel group?
  • Is it reasonable to expect a return on investment when investing with an angel group, or is it just a hobby?

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Key Takeaways:

1-Key benefits of joining an angel group
Michael talked about a number of benefits including:
  1. Deal sourcing and dealflow…  investors get access to more deals and higher quality deals
  2. Broad expertise… b/c groups are made up of many successful, accredited investors from a variety of industries and disciplines, you can access a wider breadth of expertise when evaluating startups
  3. Leverage… both angels within the group and then also networks of angel groups can participate in deals together to get better terms, structure, liquidation preferences, ongoing governance and even board seats.
  4. Pooling resources… so for diligence and other administrative activities, you have more people to share the burden.
  5. Fee structures… often the fee structures in an angel group are lower than that of a VC fund
2- VC Funds vs. Angel Groups
So Michael identified the primary difference between a VC Fund and Angel Group Investment…. he explained that In a VC fund, the General Partner or fund manager is making all of the investment decisions on their own, with no oversight or choice by the individual LP investors.  Whereas in an Angel Group, the members have discretion to participate or not in each individual investment in a startup that is made.  So, for investors that are more interested in a passive role, then VC fund route works very well.  And for investors interested in a more active role, Angel Groups are often a good fit.
3- Failures  
So Michael talked about how failures may be humbling, but the reality is that you should have failures, and know that that’s part of it.  In this business if you don’t have those failures, you’re probably not trying hard enough to get those big wins.

Tip of the Week:  Easy Problems, Tough Solutions…