Great Lakes Angels Vet Deals, Try Not To Be A–holes

5/6/11Follow @xconomy

What’s the secret to a successful angel investor group?

“No assholes,” John May, chairman emeritus of the Angel Capital Association, told the Great Lakes Angels Thursday.

People laughed, but May was perfectly serious.

“The group has to treat entrepreneurs well,” says May, the co-founder and managing director of New Vantage Group in Vienna, VA. “You can’t afford to have one member with the group that messes up the chemistry.”

I looked around the room. I didn’t see any assholes, but rather somewhat wealthy, white men–lawyers, distributors, former executives–gathered on a 23rd floor conference room in downtown Detroit, hoping to vet some deals and brush up their investing skills.

Angel investing has traditionally been a low key affair: well-to-do, often anonymous individuals investing $25,000 to $250,000 in early stage startups. Some do it for money. Some do it for fun. Some do it for some sense of civic duty.

“We need psychic reward while we wait for financial reward,” May says.

But as many venture capital firms pull back from early stage/seed deals, angels are being asked to fill the void. That’s a tall order for group of investors that’s not really a group at all but rather of bunch of part-time investors doing their own thing.

Of those, May says, only five percent really know what they’re doing. The remaining 95 percent are “just winging it,” he says.

One solution is to, well, organize. Formed in 2002, the Great Lakes Angels, the first such angel group in Michigan, hopes to provide structure and training to would-be investors, says chairman David Weaver. An organized group allows investors to pool their money and expertise and spread the risk.

On Thursday afternoon, a group of experts took the angels through a “due dilligence checklist,” the factors angels must consider when evaluating a deal.

For example, entrepreneurs tend to downplay the competition, so angels must either question them more … Next Page »

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