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Angels and VCs find common ground

By David Spreng and Knox Massey

This article was published in the February, 2008 edition of the Venture Capital Journal.

David Spreng is the Managing General Partner of Crescendo Ventures and a member of the NVCA Board of Directors. Knox Massey is the Executive Director of Atlanta Technology Angels and a member of the ACA Board of Directors.

The National Venture Capital Association and Angel Capital Association are committed to working together, say NVCA’s David Spreng and ACA’s Knox Massey.

It is said that during the Great Depression, wealthy individuals would swoop in and fund Broadway shows that might otherwise have not have opened, giving hope to actors and audiences at a difficult time in our nation’s history. They were coined “angels” and almost 80 years later these investors continue to give life to interesting projects and companies.

No longer focused on Broadway, today’s angels are leveraging their personal net worth to directly fund startups in the very same industries that Venture Capitalists embrace. One academic expert estimates that Angels invested $25.6 billion in 251,000 mostly early stage deals in 2006.

Angel investors are also increasingly serving as trusted partners and helping to create new opportunities for the venture industry. Angels have funded startups that later became household names, often with venture backing for growth. Examples include AppleDellFacebookGoogleHome DepotPaypalStarbucks andYahoo.

Historically, the relationship between Angels and Venture Capitalists has been an afterthought at best. Venture Capitalists were often frustrated with non-standardized Angel investment terms and what they would consider to be mixed advice to entrepreneurs that came along with an Angel investment.

Likewise, Angels often felt discounted both literally and figuratively by Venture Capitalists who seemed to lack an appreciation for the Angel contribution. Yet, during the last decade, the sophistication of Angels has increased overall and their ability to leverage their networks and organize into formal groups has caused the venture capital industry to stand up and take notice.

One of the more prevalent signs of sophistication is the growth of the Angel Capital Association(ACA) which currently has 140 Angel Groups, which in turn represent 6,000 accredited investors in North America. The ACA charter is to develop professional standards, share best practices and build relationships and collaboration between Angel Groups.

Recently the ACA conducted a survey of Angel investors which supported the premise that Venture Capitalists and Angel Groups are forging new, complementary investment relationships. According to the survey of Angel Groups:

  • 74% say relationships with Venture Capitalists had improved over the last three years.
  • 80% report positive relationships with VCs in 2006 and 2007.
  • More than 80% of Angel Groups focus on seed and early stage investment.
  • Some VCs are Angels themselves and 54% of the Angel Groups count VCs as members.
  • The top industries targeted by Angel Groups are medical devices, software and biotechnology.

While both Angel Groups and VCs have issues to improve in our relationships and processes, establishing strong relationships with quality Angel Groups can be extremely valuable to a venture firm’s deal flow and ultimate returns.

At $250,000 to $1 million, the average size round for an Angel Group is often below what most Venture Capitalists would consider investing in a Series A round. However, respected Angel Groups may well have the next generation of promising early stage companies that a Venture Capitalist is not ready to invest in but also doesn’t want to lose track of.

The ACA and the NVCA are both committed to working together to improve the relationships between Angel Groups and Venture Capitalists by sharing best practices and enhancing communications between the two associations.

Transitions from Angel Groups to Venture Capitalists should be seamless and considered a valued relationship for all the stakeholders, including entrepreneurs, co-investors and limited partners. For venture firms that have yet to explore relationships with local Angel organizations, a list of ACA members by region is available at