Being an angel investor is not an easy job. Angels put a lot of time and effort
in searching for new investment opportunities, evaluating countless numbers of business
plans, conducting timely due diligence, examining management teams, and validating
novel technologies for the marketplace. Their role as an independent investor may
often require some flexibility in order to meet the challenges of their demanding
profession. Many angels would prefer to pool their money from different sources
rather than be the sole financier of a given investment. They would also prefer
to employ different people who can take on their tedious responsibilities and make
many of their critical financial decisions.
High-risk mutual funds
An example of this new approach to angel investing is found in a form of a high-risk
mutual fund in which a single angel investor can invest anywhere from $50,000 to
$250,000 for a given early-stage venture. Fund managers simply select the different
companies to invest and are responsible for conducting timely due diligence. This
saves the investor much time and energy, while still being given the opportunity
to participate in angel investing. Investment advisors, on the other hand, are able
to see the benefits of this new approach as an excellent means of deploying a small
percentage of one’s portfolio and reaching the upper end of the risk/reward
Angels investing in VC funds
Champion Ventures is a group that was founded by ex-football stars Ronnie Lott and
Harris Barton who witnessed their fellow athletes lose much of their hard-earned
money in poor-advised ventures (including restaurant chains, real estate, etc.).
They established this exclusive organization comprising of hundreds of celebrity
athletes from all major sports areas with the intent of assisting and protecting
their fellow athletes’ investments. Their solution was to take on the role
of angel investors while investing in large, well-known venture capital funds. This
organization has many benefits for its celebrity clients, including well-devised
financial decisions made by experienced venture capitalists in addition to having
the capability to back early-stage businesses. Champion Ventures has nearly $200
million in committed capital, where its patrons can invest in different venture
funds of varying industries, greatly diversifying their portfolio.
Public venture funds that welcome small investments
The Draper Fisher Jurvetson Firm, one of the nation’s most respected venture
capitalist organizations, recently proposed the Me VC/Draper Fisher Jurvetson Fund,
a public venture fund that welcomes small investments, with the prospect of reaching
$500 million in committed capital. Investors can purchase as little as one share,
with diversification of choosing between 30 to 50 different companies of investment.
Most angel investors do not have the experienced technical background to make sound
VC decisions; therefore, associates of the Draper Fisher Jurvetson Firm will make
the decisions for the investor concerning which companies they should invest in.
Stock exchange for private placement
In 2001, a group of former executives from the Bear, Stearns & Co,
Inc. (a leading global investment banking, securities trading, and brokerage firm),
launched the NYPPE, or New York Private Placement Exchange. This is a stock market
that was created to allow wealthy individuals to trade shares in private companies
(most of which are funded by angels and VC’s). Their primary goal in devising
this exchange was to generate a secondary market for venture capital that is comparable
to public stock exchanges. Being part of the NYPPE would allow angels who invest
in private companies to obtain liquidity (sell shares) prior to their exit and for
wealthy individuals to have easier access to VC-type investment opportunities.
New financial mediums have been devised for angel investors that greatly promote
VC investments. High-risk mutual funds, ability to invest in VC funds, public venture
funds, and private placement stock exchange are some examples in which angels can
benefit from their venture capitalist counterparts while retaining their angel profile.