Super angels,” individuals who invest significant amounts of their own money in start-ups year after year, have the appetite and the capacity to put hundreds of thousands or even millions of dollars into single deals.
They make rapid investment decisions. They leverage the contacts of enormous personal networks and base much of their diligence on their own expertise.
Super angels may also influence entrepreneurs’ expectations in such a way as to push angel groups to speed up decisions and increase investment size to continue to attract the better deals.
Such are the initial findings of an ongoing Angel Resource Institute (ARI) research project that explores the influence and impact of super angels on entrepreneurial innovation and angel investing.
A catalyst for innovation
“As angel investors have become significantly more professional, organized, and easier to ‘see,’ there is no doubt that angel investing has been, and will continue to be, a catalyst for innovation,” says Richard Sudek, chairman of the ARI research committee and chairman Emeritus of the Tech Coast Angels.
“This study further clarifies the different types of angel investors and their activities with a detailed focus on the impact of those extremely active angel investors commonly referred to as super angels.”
Over the last eighteen months, Allan May, chairman and founder of Life Science Angels; Dr. Robert Wiltbank, professor of Strategy at Willamette University, and Dr. Sudek, interviewed super angels who have invested $5 to $100 million directly in between eight and ninety new ventures each. The super angels interviewed averaged about thirty angel investments per individual and came from diverse geographies.
“Super angels are not a new phenomenon. They have been around from the start of main-stream early stage investing in the late seventies and early eighties, if not earlier,” says Mr. May.
Major players in most tech sectors
“They have been major players in most technology sectors, such as semiconductors, software, biotechnology, and medical devices. These angels backed companies like Google, Twitter, A123, Amgen, AutoCAD, Intel, Apple, National Semiconductor, Guidant, and Teledyne when they were barely companies,” Dr. Wiltbank says.
As uniquely active investors with the capacity to support a company further along the growth path, super angels, like venture capitalists, are able to attract great deal flow in the silos of their expertise.
“Commonly when one mentions super angels, thoughts lead to high-tech investors from Silicon Valley,” says Dr. Sudek.
“However, super angels are found throughout the country and not just doing high-tech. We found serial investors who make large angel investments year after year from the East Coast, Northwest, and Southwest, as well as in California. Most all of these super angels have built companies themselves, which is typically what produced their original capital for investment.”
Wide variety of investment strategies
The ARI project team observed super angels applying a wide variety of investment strategies, from “broad and thin,” characterized by investing in many ventures but rarely making a follow-on investment, to “co-founding” or starting a venture with 100 percent ownership, to “deep dive” where the super angel had extensive sector expertise and the specific industry network to leverage talent, strategic partnerships, customer relationships, and the startup’s exit strategy.
“Some super angels we interviewed had invested more than $10 million into one company,” says Mr. May. “This capacity allows them to be very patient and work with uniquely capital inefficient companies all the way to an exit.”
While not all super angels interviewed invested a lot of capital into a single company-study respondents ranged from $50,000 to $10 million -the group did show a rather extreme commitment to invest within the sector in which their initial fortunes had been made. This was particularly true of Silicon Valley-based super angels. For entrepreneurs, the sector where a super angel has invested before looks to be a fairly reliable predictor of where the super angel will be interested in investing next.
Big passion required, no quiters, no jerks
“When asked what they had learned from their investments, without prompting, and without hesitation, every single super angel stated that they were much better at reading people and understanding the risks and potential that the individuals and team dynamics bring to the mix,” Dr. Wiltbank says. “Their position on people was quite common: big passion required and absolutely ‘no quitters, no liars, and no jerks.’”
Sharing an investing landscape with super angels, angel groups can benefit from creating a collaborative network that can process investment decisions more quickly. Sidecar funds, funds that invest alongside an active group of angels thus increasing the investment size, may become more important in keeping an angel group relevant to great entrepreneurs, particularly in localities where super angels are active.
“This research is continuing,” says Dr. Sudek. “We are still evaluating the different ways super angels’ social networks influence their investing, their specific decision rules, and their practices for involvement after the investment.”
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