C. What is an Angel Network and Group?
Business angel networks and groups are by definition platforms, set up with the goal to reduce transaction costs for its members and startups in the process of early stage investments. These organisations thus orchestrate support activities to increase transparency, knowledge transfer and are implementing standardization in requirements and processes.
Business angel networks understand that transparency is crucial for accurate valuation of startups and therefore collect data and observations and are willing to share insights with members and other networks (in compliance with GDPR).
Angels can make individual investment decisions in networks/groups, that is, some angels may invest in one deal and another (set of) member(s) may invest in the next deal. Even a temporary phase of non-investment is possible. A network doesn’t invest itself in the deals presented, its members do. There is no standard model for BA-networks and groups, consequently operations vary from organization to organization. They can be for profit/not-for-profit organisations.
Things that they have in common:
I. Angel networks/groups encourage deal flow by promoting the organisation and easing the process for applying for funding.
II. Angel networks/groups can provide their members with rigorous, standardised processes for screening deals, for performing due diligence on candidate companies and in design and utilization of term sheets for investment. Investing through angel organisations is usually handled in a standardized manner. They often have a code of conduct for their members.
III. Angel networks/groups actively recruit angel investors to join their network/group. The networks enforce amongst its members a Code of Conduct in order to ensure the highest professional standards, ensure the equitable provenance of the funds invested and to foster the image of angel investing in general.
There are mainly two ways of organizing a network activity and structure:
In these networks, managers are appointed to lead the organisation. Managers are usually compensated through member dues, entrepreneurs’ fees, success fees, carried interest on deals in which members invest, sponsoring, etc.
Elected members manage these networks. Members are recruited to screen deals and to lead due diligence efforts. Other members are responsible for finances, membership recruiting and communications. Administrative assistance is often provided by local service providers, entrepreneurship centres or is hired by the network/group. Dues pay for this administrative support.