At a recent accelerator event on the West Side, a friendly young founder told me that he had been coached by his mentor not to talk to Angel groups. As a Pasadena Angel, I wanted to be shocked, but I wasn’t. The Angel funding process can be arduous. But as a community, we have to figure out how Angels can effectively participate in the development of accelerator-based companies. With the VC ranks shrinking, founders need to tap every source of capital out there. Building ties between accelerators and Angels is a key part of the solution.
The conflict is built in. The entrepreneurs in startups are trained to go fast and run lean. Angels tend to evaluate companies at a leisurely pace, and ask many questions. It’s no wonder Oscar and Felix don’t get along.
We know we’re short of capital, particularly in LA. The accelerators are succeeding in generating more companies at the same time that the VC industry is contracting. A VC I respect just told me “the environment is not flush with cash, no matter what the media is saying.” And the Kauffman Foundation just published a major study pointing out that all but the top 10% of VC firms fail to create value. It’s not getting easier to find capital, particularly for A rounds. And, yes, I know newly minted Facebook and Zynga millionaires are sprinkling money around, but they can’t fund everything.
To help with the capital shortage, we have to tap the Angel community. Having raised money from Angel groups myself, I know the process can be maddeningly slow. Built around a series of monthly meetings, it can easily be 45 days from business plan submission to the major presentation. Then you answer questions from 10-20 individuals, and struggle to put a deal together for $250-500k. No wonder founders ask themselves if it’s worth it. A solution is beginning to emerge though.
I’ve been seeing individual Angels with deep pockets beginning to frequent accelerators looking for a chance to participate in seed rounds. I’m personally aware of several TCA and Pasadena Angels members who are actively investing, and then sponsoring companies at their respective groups. I’m not convinced that this is a scalable approach, but it’s not a bad start.
So what do we do? First, the Angels have to take the initiative and engage proactively with accelerators. A number of individual PA and TCA members have been doing this, but it’s not yet an organized effort. The Angel groups need individual members to take charge of nurturing the relationship and consciously invest time and effort in building ties. We are going to have to build deeper contacts if we want to generate understanding and real progress.
We also have to work to streamline the Angel process, and I’m seeing some real forward motion on this front. The TCA and PA have agreed to use a common term sheet, cleaning up one source of aggravation. At the PA, we’re also allowing any company that passes TCA initial screening to present to our monthly meeting with no further formalities. In other words, you can get access to a big slice of the LA Angel community in one step.
The problem will get solved. We need each other. I’ve been spending some time at LaunchPad and Amplfy, and some of the best startups in LA are at those incubators. They are all hunting for capital, and the Angels are hunting for hot companies. Oscar and Felix will have to figure it out.