SUPERCHARGING ANGELS
Open Angel by āltitude
// The Angel Landscape — A Brief Introduction
The Informal VC Market is a major part of the early stage funding curve, which comes way before most VCs even consider to invest. It mainly refers to the investments made by angel investors. So how many angel investors do we actually have in Europe? There are around 340.000 active angels.
“Surprised? To be honest, so were we.”
An average angel has about 12 portfolio companies, whereby the long tail angel has only two to three. We identified a huge fragmentation in this particular part of the funding curve — this is what we are calling “the mighty angel long tail”.
Despite this, angel investors are a powerhouse of early stage investing. They provide over 50% of all early stage funding volume. They also don’t just participate in first cheque or Pre-Seed rounds, more than 60% of the funding goes into Seed and Series A rounds.
We at āltitude have over 36 years of combined angel and venture capital experience, within the past decade we have invested in over 200 startups, as angels and venture capitalist. During that period we had the great pleasure to work closely with many angels.
Looking back we’ve come across two different categories of angel investors:
(i) Professional Angels: coming from within or having access to the tech ecosystem and larger doing a larger number of deals. Normally with an entrepreneurial, startup and/or venture capital background. They approach investing with a structured portfolio based long-term investment strategy.
(ii) Long Tail Angels: they’re often opportunistic, investing into the people they know or businesses that excite them. They take a much less sophisticated approach to investing and do far fewer deals with smaller ticket sizes.
95% of the overall angel landscape are long tail angel investors with a fairly small portfolio and limited experience. Though, the sheer volume is impressive.
// From Centralized to Distributed Angel Networks
The angel landscape is a moving target. Twenty years ago, the European angel landscape and tech ecosystem looked vastly different from today. It has been highly centralized, with just a few angels and they were hard to find and even harder to get access to.
Technology has drastically transformed the landscape, allowing angels through various online platforms including AngelList, LinkedIn, Carta, Chrunchbase to be more visible and interconnected.
Today’s angel landscape is distributed, it’s highly fragmented with a strong invisible and powerful informal long tail. However the biggest question founders continue to ask is “who can fund or lead my first round?”.
As of 2022 we have over 2.000 active venture capital firms in Europe and there is an increasing debate that too much money is chasing too few great deals. Well, we are at an inflection point, as the market is moving from a startup market back to a VC market.
Given that the VC market follows a power law — timing, tracking and access to deals earlier is becoming the key to success. Angels play a big part in this, often being the first to see deals before anyone else. Naturally more VCs will want to work with them.
But who do they actually work with and how?
VCs work with angel investors in a number of ways and many of them are trying to follow the quality over quantity approach, aimed at rather professional angels:
(i) Scout Programs: The most popular are scouting programs, where VCs handpick a small number of individuals (often operators and branded angels) into an annual cohort and give them money to invest into deals that they wouldn’t otherwise see (which we are not sure about).
(ii) Angel Communities: often attached to their funds,x angels and operators, which are not in any formal programs, but they’re invited to special VC events, share dealflow with the VC and have potentially co-invested with the angels and operators before, or even have them as LPs.
So, VCs are likely to be biased in picking angels and operators from their tech ecosystem for their scouting programs — but why? They would probably have seen most of the deals anyway. They are not unlocking informal networks with new deals outside of their own closed tech ecosystem. That’s why we love the mighty angel long tail.
There are three core consequences:
(i) VCs neglect the power of the long tail.
(ii) These angel groups may be biased or less diverse.
(iii) There is a potential overlap to deals they would see anyway.
More importantly, how do scouting programs work anyway?
Well, there are multiple ways to structure a scouting program for a VC fund. All of them have one thing in common. They are part of the general dealflow strategy of a fund. Sometimes they are core, sometimes not.
In general, VCs appoint scouts and give them an incentive to source and bring them investment opportunities. Some VCs grant budgets to each scout to invest, other VCs invest directly (and pass a small allocation of their investment to the scouts).
After all scouts may participate via a deal-by-deal compensation or they end up in a scouting pool, where all scouts share the compensation of all deals equally. Compensation may vary, from one-off cash to carry over a mix out of both worlds.
// Supercharging the Mighty Angel Long Tail
Let’s take a look at the “Professional Vs. Long Tail Angels” example from above. Just imagine a pool of 100 angels, whereof 5 are professional and 95 are long tail angels.
(i) 5 professional business angels will see 250 deals a month, where 50 are high quality (keep in mind that VCs will likely see half of the professional angel deals anyways).
(ii) 95 long tail angels will see 1.900 deals a month, where 95 are high quality. Just think about the sheer size of all the informal networks and its potential.
“It’s almost hard to neglect the fact that there is a massive untapped long tail potential, right?”
Seemingly syndicates are the way to go for the average long tail angel, 66% of all angels in the US invest predominantly in syndicates, which goes hand in hand with our investment experience here in Europe — as we are angels ourselves, we have done over 60 angel deals in the past years. It has never been easier, cheaper or faster to create and run a syndicate, which is mainly due to solutions like Vauban, Odin, Bunch or Leva.
We’ve seen a number of syndicates which have been created in the past years, such as Alma Angels, Evangelistas, Silicon Allee and many more. It makes all the sense in the world, as angel long tail tickets might be too small to access certain deals.
// Why we created Open Angel
Our prediction is that we are going to see many more angel syndication platforms, specialist angel groups and formal / informal angel programs from emerging and established VC funds, which can only be a good thing for founders and VC ecosystem. However, we also believe:
(i) Great deals can come from anywhere.
(ii) Outstanding companies can be built anywhere.
(iii) We need more diversity and inclusion in angel investing.
(iv) The power of informal networks and long tail angels is immense.
(v) The ability to see great outliers doesn’t duly depend on backgrounds.
“Open Angel is a new way to leverage informal networks, by aligning economic interest in order to access high quality deals, earlier.”
It is built on the premise that great deals can come from anyone and anywhere. We aim to harness the mighty angel long tail or professional angel, enabling any angel and/or syndicate out there. Regardless of their background, or where the deal has been sourced.
What kind of deals are we looking for with open angel?
(i) In general, there is no such thing as „too early“ for us — the earlier, the better.
(ii) We prefer deals from Europe and UK per se — but might make an exception here and there.
(iii) As we love B2B, we will definitely be biased — though, every rule has an exception.
(iv) As hardware is hard and software is our home turf, we prefer software first deals.
How do angels qualify for open angel?
(i) Well, you just need to invest a minimum of EUR 5k yourself and win the allocation.
(ii) We prefer to work with nice people, at all times — we want to learn from you, as well.
Why do angels want to send us their deal?
(i) First of all we could top up your investment with another EUR 100k — no strings attached.
(ii) Furthermore, we would share 20% of our EUR 100k upside with you — lets win together.
(iii) We would welcome you to our closed high calibre angel community, with all its perks.
What happens after an application?
(i) We need 48 hours to screen and review your deal — please be indulgent with us over weekends.
(ii) In case we like the deal, we would be pleased to get to know you and learn more about the deal.
(iii) Time wise, we will go with the flow and adjust to closing deadlines — we will be mindful of your time.
(iv) If we push the deal over the line, we do a simple trust agreement — piggy-backing under your name
We are supercharging angels. openangel.tech
