Angel investment, as we angel-backed folks at Xconomy know firsthand, is the lifeblood of many a startup company. Angels often finance promising companies and ideas that are too small or too early in their development to attract the interest of venture firms. These seed and early-stage investments—typically of under $1 million each—help fill a vital gap in the innovation funding pipeline.
Angels started out as individual investors, but increasingly they have been organizing into professional groups, sometimes with full-time staff. Last week I took a look at the predictions that 135 such groups in the U.S. and Canada are making for angel investing in 2008, as described in a report from the Lenexa, KS-based Angel Capital Association. As a follow-up to that story, I wanted to zero in on New England angel groups. The region, after all, has always been in the vanguard of angel trends. This history dates back to around 1980 and the recently deceased Mort Goulder’s then-informal gatherings at the Nashua (NH) Country Club known as the Breakfast Club, which evolved into the still active Breakfast Club of New Hampshire, according to James Geshwiler, managing director of Lexington, MA-based CommonAngels (the lead investor in Xconomy).
What Geshwiler terms modern angel groups, bigger and more organized, got going with Silicon Valley-based Band of Angels in the mid-1990s, followed here in Massachusetts by CommonAngels and Walnut Venture Associates of Wellesley, both of which he says launched in 1998. They paved the way for nearly 20 others that exist in New England today, resulting in what is probably the country’s greatest concentration of such groups. The region’s angel roster now includes several large and fairly diversified groups like CommonAngels, Angel Healthcare Investors of Newton, MA, Launchpad Venture Group in Wellesley, and Brookline, MA-based Hub Angels, as well as smaller, typically more specialized operations like Golden Seeds, which invests in women-led ventures and now has arms in Boston and Connecticut.
And a bit to my surprise, given the region’s somewhat insular, go-it-alone ethos, ACA executive director Marianne Hudson says New England is the clear leader in supporting collaborations between angel groups, a practice that allows groups to pool their funds to support larger investments. Indeed, back around 2005, Geshwiler, Bill Swiggart of Beacon Angels, and others convinced ACA member groups in New England to work out standards for working together (more on this below). And this April, some 20 groups will meet for their eighth quarterly Regional Angel Summit.
I’ve listed all the New England angel groups I could find here, along with brief descriptions of their investment focuses, contacts, and links to their home pages. I also pressed Hudson for any data she has on New England angel groups, what they invest in, how much they invest, and how that stacks up to the rest of her membership. She cautions that her data set isn’t the greatest, since only a little more than half of the New England firm in the ACA responded to the survey. But here are the highlights.
—Smaller than average group sizes
The average size of a New England angel group (42 members) is a bit smaller than the average for all ACA groups (55 members). Geshwiler says New England’s large numbers of entrepreneurs who’ve cashed out and become investors, coupled with the region’s density and a cultural bias against the less-personal mega groups found in California, all fueled the trend. “We’ve got different groups for Wellesley versus Waltham,” he says.
—Slightly more deals, slightly lower average investment
New England angel groups invested in an average of 7.7 companies last year, slightly more than the ACA average of 7.3 firms. However, their average investment of $255,000 was a bit under the $265,000 figure for the broader group. (Obviously, the smaller average group size in New England could have something to do with that.)
—Widespread interest in biotech, healthcare, and medical devices
Upwards of 80 percent of New England angel groups reported a preference for investing in both biotechnology and medical devices, with healthcare services only slightly behind. ACA-wide, the medical device figure was equivalent, but biotechnology was a preference for only about 58 percent of groups—and healthcare services was preferred by only about 28 percent of angel groups.
Other top choices for New England angel investment were consumer products and services and financial services (each preferred by 70 percent of angel groups reporting); electronics/information and media and entertainment (about 65 percent each); and then a pack that included industrial/energy, IT services, networking and equipment, and software (all of which were preferred by about 60 percent of the groups).
—Leading the way in collaboration
As mentioned above, New England angels are far beyond the rest of the country when in comes to joint investing, with several groups pooling their funds to enable larger investments, often over $1 million. “It’s happening elsewhere but I think they [New England groups] have the most systematic set-up, where they have really built a lot of knowledge and trust between the groups,” says Hudson. They’ve really gotten to know each other, and that’s critical.”
Indeed, groups in the region have already worked through a lot of thorny issues—including reaching general consensus on terms, developing standard documentation, and agreeing on minimum standards of due diligence, so that when one group brings a deal to the table, the others can trust that some basic homework has been done. Beacon Angels’s Swiggart championed the idea of crafting a “treaty” under which groups to promise not to be litigious over due-diligence issues if an investment goes bad. “That type of hold-harmless approach was a major benefit to entrepreneurs,” says Geshwiler, noting that startups under consideration for investments might otherwise get reference calls from five groups asking the same questions.
Of course entrepreneurs can also benefit from a little competition between angel groups, as well. So click here for the list of the 20 New England-area angel organizations a crafty entrepreneur might want to try to lure into a bidding war.
