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Wednesday, December 9, 2009

The Rise of the New Angel Investor Paradigm

from John P. Dilts, Maverick Angels





For the past 20 years, I have had a front row seat in watching the evolution of the angel and venture capital sector from both the legal and venture finance perspectives. I have witnessed how the early stage investment space has morphed rapidly, and I have watched the ebbs and flows and the ultimate collapse of the former venture capital model as the global economy turned on its head.

Since the 90’s, venture capitalists have largely moved upstream to manage bigger funds and a distinct funding gap emerged between VCs and the seed stage, friends and family round of financing. Especially since the economic recession hit and many VC funds stopped in their tracks, angel investors have filled that funding void and have surpassed the volume of VC investing in emerging-growth companies. However, the challenge is that angels are very fragmented, and most angel groups are run loosely by volunteers and part-time managers who lack the time and focus to properly serve the interests of angel investors and entrepreneurs alike.

Incubators, venture accelerators and numerous other early-stage focused models have come and gone, but the angel network model is now consistently growing in popularity and interest. There are specific drivers behind that trend: 1) Interest by angels in sharing risk and due diligence; 2) Managing an increasing volume and variety of opportunities efficiently; 3) Leveraging the collaborative strengths of the membership; 4) Giving individual members the power to make their own investment decisions via a hands-on approach (especially important when managed stock portfolios took a nose dive) and 5) The need to socialize and interact with like-minded, like-spirited investors with a passion for supporting entrepreneurial ventures (many are successful serial entrepreneurs themselves).

Given these drivers, there is an enormous opportunity to organize the way angels and entrepreneurs interact in the early stage in a win-win manner. While the business models for how angel groups can best be run may be up for debate, there is no question that relying on loosely managed meetings with high-net worth individuals is not a sufficient approach to fill the growing need for entrepreneur funding, resources, guidance and support, especially since the explosion of information and access now available to entrepreneurs globally because of the IT and Internet boom.

The conventional angel groups are not incentivized to do more than work to find a diamond in the rough as a collective group of members, looking for the next Google or similar high-growth venture. Aside from providing a front-end filter and event-planning function, they typically have no infrastructure or budget for entrepreneur training, acceleration services and systemic and formalized mentoring with a more entrepreneurial perspective as does Maverick Angels.

As a result, the angel investor space is taking on an increasingly important role and yet needs to be better facilitated and organized as there is a growing need for more organization and infrastructure to support those efforts. There is heightened demand for, and tremendous benefits deriving from, providing more structure and professional facilitation in the early-stage financing sector.

At Maverick Angels, we have modeled and mapped out the entire entrepreneurial process as well as the growth strategies demonstrated by effective start-up companies based on numerous interviews of successful serial entrepreneurs and how they have efficiently navigated resources in the open market. We teach these unique models, behaviors and strategies to entrepreneurs who come to us for funding via our Maverick Angels Boot Camp for EntrepreneursTM. We work these models into how we manage our uniquely collaborative network of Members - all of whom have been interviewed by their fellow Members and who have agreed to participate in this generative process. As a result, we provide an extremely valuable service which entrepreneurs constantly tell us that they cannot find anywhere else – not in the universities, not online, not from business books, not from VCs, not from venture conferences and not from conventional angel networks.

I strongly believe that we are only at the tip of the iceberg in terms of collectively streamlining the entrepreneurial process in our country and ultimately globally. It has to do with understanding the interactions of the people, the process and the playing field with the entrepreneur learning to navigate resources and relationships in an increasingly efficient manner and with the support of enlightened, smart money investors with extensive networks of relationships across a variety of industries.

In that regard, we have truly created a fresh, new approach for how innovation and opportunity meet with financial and strategic resources according to new parameters for engagement and in a more systemic way. We now have the opportunity to fast-track new ventures toward scalable growth and ultimately liquidity in ways which were never before possible. This requires that we all share a common language and understanding about the entrepreneurial path and participate in a shared process to reduce risk and optimize upside to create a positive result for all involved.

This may sound like a fantasy world, but Maverick Angels has already established this ground-breaking framework and the participants are falling into place, including large companies looking to innovate more frequently and who are willing to invest earlier and seek to acquire more companies at a lower price to gain an advantage in an increasingly competitive global marketplace. Our close alliance with Intesa SanPaolo Bank, among the largest in Europe, to help us facilitate this collaborative model is the latest addition to our streamlined, start-up to exit continuum, now giving us global reach from LA to Moscow. We encourage others in the venture capital and angel investment community to join us in our focus for how best to support entrepreneurs and their investors to create a more systemic, collaborative and winwin approach. There can be no doubt that in the unpredictable and constantly changing new global economy, this will become the new paradigm for supporting entrepreneurial ventures for the future.

John Dilts is the Founder and President of Maverick Angels, LLC (www.maverickangels.com) an angel investor network based in Southern California, which focuses on funding and mentoring early-stage companies. John is also a Co-Founder of The BioTech Forum based in Westlake Village, California. The Forum is a networking group focused on creating a new biotechnology cluster to bring together investors, entrepreneurs, scientists and corporate executives. Early in his career, John was employed for several years with top corporate law firms in Silicon Valley and has since served on the board of directors for numerous emerging-growth companies, both private and public, addressing a variety of industries.


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