The following article is a summary of information reported in “Angel Investment Groups, Networks, and Funds: A Guidebook to Developing the Right Angel Organization for Your Community” by Susan Preston in association with Kauffman Foundation.  September 2004.

Angel Investing – Part 3

Implementing your Angel Organization

Once you have decided on the structure of your organization you are ready to implement your angel group.  Successful implementation will determine the future of your group.  There are steps you can take to make implementation smoother.

Membership

It is important to properly identify and communicate with potential members.  The recruitment, screening, selection and orientation process help you build a solid membership base.  A website and/or written materials should clearly communicate membership expectations, your organization’s structure, investment potential, the group philosophy and ethical standards.  Construct a committee with a good understanding of your group who can effectively communicate to manage member recruitment and selection.  This committee needs to be willing to thoroughly review applications, interview candidates and host prospective members at a group meeting.  Documentation is also an important component of membership implementation.  Your group needs a membership application with qualifications, group philosophy, code of conduct and ethics, and reasons for removal clearly stated as well as a renewal and application review process.  It is necessary to have a stated removal policy as well and a written process for reflecting on all membership steps.

Other important aspects of membership recruitment include:

• Members’ background and experience in investing
• Education programs (within your group)
• Time commitments

Meeting Structure

Meeting structure can be the most difficult aspect for members to agree on.  Meeting parameters to determine include:

• Timing and location
• Format
• Education

Budget

Operational costs are influenced by many factors, but the following expense items provide a starting point for creating a group budget.

• Management
• Manager
• Executive Director
• Administrative support
• Website development and maintenance
• Meetings
• Member
• Board
• Committees
• Member relations and communications/correspondence
• Meeting announcements
• Program announcements
• Letterhead
• Annual surveys
• Membership information packet and gifts
• Newsletters
• Important events or occurrences
• Public relations
• Logo and image development
• Promotions plan
• Office expenses
• Rent
• Furniture
• Equipment
• Utilities
• Postage
• Professional fees
• Insurance
• Banking services
• Programs/events
• Member training
• Investment forums
• Public educational programs

Investment Evaluation and Process

The investment process can take many forms, but generally will follow these primary steps and one of the listed alternatives:

1. Deal Sourcing – identifying potential investments.
1. Service providers
2. Venture capital funds
3. Investment forums
4. Local universities and enterprise centers
5. Group website
2. Deal Screening – provides a mechanism for selecting companies that the entire angel group will review, typically through presentation at member meetings.
1. Individual reviews
2. Tiered review approach
3. MBA intern initial reviews
3. Coaching – coaching selected businesses to ensure companies present the right information, in an effective format.
4. Company Presentations – at each meeting, typically two to four companies present for a limited time followed by a question and answer period and private member discussion.
5. Due Diligence – dependent on group structure.  In manager-led organizations, the manager often leads the investment-evaluation process.  In member-led organizations, an experienced group ensures the diligence process covers relevant topics.
6. Investment Vehicles
1. Local
2. Regional
3. Broad geographic view – dictated by investment focus
7. Investment Terms and Negotiations – form of investment.  Preston advises seeking a local professional, lawyer or accountant, with experience in investment terms and negotiation techniques.
8. Liability and Risk Exposure – your organization should have a strong liability disclaimer.
9. Follow-on Relationships and Activities
1. Information rights, including at least annual financial statements and annual report
2. Management visitation rights
3. Business plans
4. Quarterly financials
5. Annual operating plans
10. Promotions/Public Relations – community awareness or public familiarity is essential for quality deal flow and member recruitment.

Angel Investing in Your Community

This past month we’ve looked at the reasons angels are important, how to build the framework of an angel organization and how to implement your angel group.  It isn’t easy to build an angel investor network.  But, in many areas, especially rural areas, an angel network is the greatest asset to building an entrepreneurial environment.  Angel investors provide a critical and essential link to fostering a healthy economy by providing important financial support and business mentoring services to emerging and growing entrepreneurs. 

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