To understand why an angel investor should join an angel fund, we have to understand the angels' needs.
First of all, yes, angel investors look for financial gain when investing, but by investing, they aim to create value and impact in our society.
Investing is much more than giving some capital to a startup. The angel will also gain experience and learn through the investment process. Angels usually identify emotionally with the project they are investing in, creating a self-development exercise when they involve themselves in these projects.
There are some trends in Angel investing nowadays:
We have the tourist Angel, which is the one that invests in a few startups and ends up losing money. Why does this happen? Because these angels aren't following the portfolio theory. In Angel funds, investors put their capital in very mixed and varied portfolios of startups reducing risk. (Check out COREangels' formula here and here.)
Then we have the Agent Model (VCs). This model isn't ideal for angel investors. Why? You may ask, well, in this case, angel investors leave all the decision-making to an agent who chooses what startups the money will go to. And angel investors have no say in this process, and there is no connection between entrepreneurs and angels. There is almost no involvement and no self-development for angels in this formula.
On the other hand, we have the connector model. In this model, there is a facilitator(instead of an agent). The facilitator sends startups to the angel funds, and angels decide which startups they want to invest in.
All these startups will be part of the same portfolio, and investors will share responsibility for this varied portfolio, as well as share their expertise.
So, why should you join an angel fund? Here are our top reasons:
1 Higher returns than alternatives
Angel Investing is relatively new. There isn't a lot of data about angel investing, but some researchers say financial outcomes with a portfolio bring more return than individual angels, crowdfunding, VCs and private equity.
On top of this, the involvement of angel investors in the process of growth of the start-ups they are investing in has a positive impact and can increase returns. (Check out our archangels' article and our Angel participation article for more information about it)
2 Managed risk environment
Investing in a portfolio itself mitigates the risk factor of losing money because you are investing in a portfolio full of startups in different fields. So, if one startup doesn't do too well, it is okay because you'll have one in the portfolio that is thriving.
The fund will be composed of angels from different fields of expertise. So, the fund will count on experienced people that can help the fund and the startups in many ways. If you lack knowledge of something, someone in the fund will be there to offer guidance. In an angel fund, everybody has each other back.
3 Guarantee opportunities for involvement, learning, sharing, contributing and having fun.
As we always say, one of the reasons angel investors become angel investors in a fund is to get soaked in experience and learn by doing.
You will meet and work with many interesting characters(yes, characters!) and understand different points of view while contributing to a cause.
And all of this will be a fun and rewarding experience. You will not only grow professionally but as a person as well.
4 Improve potential contribution to invested startups.
The diverse background that angels bring to the table offers different types of support. Some angels may offer entrepreneurial support, some angels may have contacts that can help with a specific field or situation that the startups may be facing.
The options are endless, like we always say, the main goal of a fund is to have people involved in the startups and all the processes to be able to soften bumps.
5 Rely on professional leadership that helps overcome the challenges of deal flow, contracting, portfolio managing, and more.
The great thing about being part of an angel fund is that each fund has a leader. The leaders are outstanding skilful professionals who will take charge and take care of the hassle involving paperwork. This includes legal matters, deal flow with partners and entrepreneurs, and portfolio management, among other things.
6 Easier to build partnerships for deal flow, next rounds and exits.
Being part of a mixed group of people and being exposed to things that alone you wouldn't be, opens doors to new partnerships for deal flow, next rounds and exits.
Not to forget that you don't only count on your fund for new partnerships and contacts. In the case of COREangels, you have a red of angel funds around the world ready to help you build partnerships.
Watch the full presentation and download the slides here.
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