Earlier this week, the Tech Coast Angels, the largest and most active organized angel group in Southern California, announced a new effort to create an angel group network, which will share and syndicate deals between groups--current the TCA, Golden Seeds, and Band of Angels. We spoke with the TCA's Richard Sudek, who is chairing the committee to syndicate deals at the group, to learn more about the effort.
Why band together for an angel network?
Richard Sudek: We've seen the landscape of angel investing and venture capital changing over the years, as it typically does. We thought that it made sense to help our the entrepreneurs in our portfolio companies, with the ability to raise follow on rounds, and also with raising greater rounds initially. When a company needs one or two million, that's often out of the scope of a typical angel group. We thought it would be a better situation if we could create a network of angel groups, to work together on funding deals, so that one, there was an increase in the volume of money, but also to increase the network of people a portfolio company is connected to, which might lead to better strategic partners, vendors, and customers.
What are the mechanics here -- would you simultaneously close on deals, or would you pass on information about a deal after one group closes?
Richard Sudek: It could happen a number of different ways. Typically, a first round deal would come in, we'd be in due diligence, it's done and we think it's a good deal and something other groups might be interested in, we'll make an introduction to them and get them into their process. Depending on the stage of the investment, once they get into that process they should have a quick on-ramp, which then can then pitch the other group or groups for more funding for a round. Often, we also have portfolio companies looking for additional rounds, and might be looking for a large round which they'd normally have to go to a venture capital firm for. Now, when a company comes back and has met milestones, but that round is larger than a particular group can fund, again we can introduce that into other groups.
Does that help at all in reducing due diligence time for those entrepreneurs?
Richard Sudek: Typically it would reduce it, as that due diligence information would be shared. Though, I need to be careful about that, because depending on the deal and group, they might act differently per deal. But I think if diligence is shared, it typically would dramatically reduce the time and make it quicker for the entrepreneur. If it is a first round deal, though, people would stlil have to look at it, and you'll probably have to spend more time in the groups versus if you were already funded, and coming back for another round.
How did you decide who to add to your network?
Richard Sudek: We're definitely looking at more established groups, with a good reputation, which we can build a relationship and where trust can go both ways. We're focused more on the west coast right now, although certainly we'll go outside that, because it's our backyard and we're focused there.
Ultimately, what would you like to see happen from this effort?
Richard Sudek: I would hope that we can provide larger rounds and additional round to our entrepreneurs. One of the theories is, that after you do a initial round of half a million or a million, if the company needs another half a million or even two million, we can provide that round, so that the company will be further down the road milestone wise. That means they can turn to venture capital when the need a much bigger round, say $5M or larger, and in the meantime we've helped them get further and helped with their valuation and attractiveness to traditional venture capitalists. We also don't think we need to make this network a certain size or number of groups, we think it's more important to pick groups wisely, and build and grow our network over time. We think it does not take a lot of angel groups in order to provide larger rounds.
Thanks for the time!