Angels becoming more like VCs?

Just when I was figuring it was cool to be an Angel investor, I read this article, “Angel investors shifting away from startups” that makes some interesting observations:

Less than half, or 48 percent, of investments by “angels” — wealthy individuals willing to place bets on nascent businesses before anyone else — through the second quarter of this year went to companies at the seed or startup stage.

The figure has fallen from 59 percent in the same period of 2004, and from around 75 percent several years ago, and has been “dropping pretty steadily,” said Jeffrey Sohl, the center’s director.

Looks like what’s happening is that Angels are naturally creating more formalized groups and those groups have a tendency to be more conservative. Rob Robinson is starting up a “sidecar” fund here in Hawaii and I wonder if that won’t have a similar effect…hmmm…

Meanwhile, Sohl thinks the proliferation of organized angel groups — as opposed to angels acting individually or with a couple friends — may favor later-stage deals. By Sohl’s count, upwards of 140 formal angel groups now are active, compared with about a dozen a decade ago.

“When four or five or more people get together, conservatism often rules, and that could favor later-stage” deals, Bryant said. “The wheels of democracy don’t move as fast as the individual passions of an investor who has money.”

He’s right. In my own personal experience, when a bunch of angels start analyzing a deal, it can quickly get sour as they raise one objection after another. This is good because it helps quickly root out the dogs, but can have a bad effect of slapping down a winner before it has a chance to shine.

So what might this mean? It means that if you’re going to get in front of an Angel group, you better have your act together. I would suggest you present your plan to a bunch of independent Angels first, get your butt seriously kicked, fix it all up, then come back for more, perhaps in front of the “real” group.