Angel Funding Waiting for the World to Change

Posted by Pierre de la Fortune on April 21, 2015 @ 12:01 a.m.

Written by Tim Berry

Since I started in high tech in 1979, angel investment was an amorphous thoroughly disorganized ad-hoc phenomenon that occurred somewhere between friends and family, on one end of a scale, and venture capital, on the other. It was hard to find and hard to describe. People were selling lists of angel investors to entrepreneurs looking for investment.

I canít say that the system worked; actually, I canít even call it a system. Angel investment just happened. Securities law severely restricts the process of looking for investors, and, furthermore, also limits who is legally allowed to invest. An ďaccreditedĒ investor has to meet minimum wealth requirements.

Last week I had a chance to talk at length with David Rose, founder of He guest posted this on this blog last Spring. Meanwhile, Iím getting more involved in my local angel investor group (Willamette Angel Conference), and using software more. And David told me heís continuing to group angel groups together, and organize. So Iím hopeful about that.

The long-term dream is a smoothly working market bringing startups together with investors who understand the risks, have money, and want to invest it.

There are at least these three problems to solve: 1. Organizing the information into a market-like system. is making real progress. Startups get an orderly application process, angel investors and groups of investors get better deal flow, and thereís more information for both sides. And continues to add to its database of founder reviews of investors. Not to mention how much more information about angel investors is now available easily through simple web search.

2. Legal restrictions. And here Iím not sure how long it will take, or even if a solution is necessarily a good thing. Itís not simple. Restrictions on soliciting investors and qualification hoops for investors were made law back into the great depression because people were getting swindled. The law regarding information is way behind technology. The assumption that wealth is equal to sophistication in startup investment is questionable.

3. Processing investment opportunities. Iíve been meaning to post for three months now about Revolutionizing Angel Funding on The Emergent Fool. That post, by Richard Dick, talks about setting up a system to process startup deals automatically, using an online screening process. Iíll be watching that one. Iím not convinced that the way angel investors process deals, one by one, case by case, is really a significant problem. But itís an interesting idea.

Overall, Iím intrigued by how much organization has happened in the last year or two. I do believe thereís an opportunity for healthy disruption in this marketplace. It may be something like what is doing for microlending, or what was doing for peer-to-peer lending before (gulp) it got a cease and desist order from the Securities and Exchange Commision (SEC). On one side, a lot of people who know what theyíre doing would like to invest in some selected startups. On the other hand, a lot of startups would like to work with investors.

The toughest part of all this is securities law. A lot of what might really make a huge difference in organization of angel investment is on the brink of breaking laws governing fishing for investors. Iím waiting, cautiously optimistic, to see how this develops. And how long it takes.

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Follow-on investing (follow-up investing)- This word refers to the event whereby investors reinvest in a company sometime during its development. Often times, follow-on investments occur when a company is not performing successfully as planned. Angel capitalists tend to avoid follow-on investments within the same company because of the high risk of additional monetary loss.

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