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The Chicken and Egg of Angel Groups

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Had a couple of great conversations today with people that want to start angel groups. I speak with different people about it all the time. I have spoken with different universities about it as well. There are a lot of variables that go into starting a successful angel group. It’s not easy.

One of the variables people think about is deal flow or members. Which comes first?

A lot of people think deal flow. If you don’t have good deal flow, then how are you going to attract members? People want to invest in good deals. They want to have the opportunity to invest capital and get an outsized return on investment. Great deal flow is critical to the success of any angel group.

As Brad Feld points out in his book, entrepreneurs are the leaders. They are the meat behind any ecosystem. The entrepreneurs create, and that sparks the interest of the investors and the cycle begins.

But is it the first thing you need? I don’t think so. I think you need active members willing to risk money on investments that generally don’t work.

Members make and break an angel group. Great members will get involved and get their hands dirty by recruiting new members, screening deals, mentoring entrepreneurs and most importantly; taking risk by writing checks on scalable start up ideas.

If you don’t have the people willing to write checks and take risk, it won’t be too long that entrepreneurs stop knocking on your door. They have opportunity costs on their idea with time constraints. A pool of check writing members attracts deal flow. Entrepreneurs are smart. They swim to pools of capital like sharks to blood.

One of the things the founders saw at Hyde Park Angels was that the area had great deal flow but there were a lot of bottlenecks to getting funded. Many deals simply left and went to Silicon Valley or Boston. The barriers were lower, even if the geography was further away.

Committed entrepreneurs will find a way to get things done.

Angel groups need to be a ready pool of capital that is relatively easy and transparent to access. That’s the first step in building a successful angel group.


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