March 7, 2006

Angel Grouping 101: Sharing Dealflow is Good

I just returned from a fantastic trip to Florida where I met with the leadership of every major angel group in the state.  I put some serious miles on the rental, driving from Ft. Lauderdale to Sarasota to Gainesville to Jacksonville and back down again — but it was definitely worth the time behind the wheel.  Angel groups in Florida “get it”.  Here’s why:

They understand that everyone benefits when angel groups share dealflow and work together

Angel investors are constantly (and rightfully) harping on entrepreneurs for being paranoid about sharing their business plans to the point that they scare off would-be investors.  However, many angel groups don’t follow their own advice — they horde up all of their dealflow, living in fear that they might lose out on one of their precious deals.

Of course, most angel groups want to be the first and/or biggest investor in a promising investment.  This is normal and good.  However, angel groups that refuse to share their dealflow miss out on several advantages.

Sufficient funding — First, foremost, and obviously … many of the hottest deals need much more than most angel groups can offer.  Without other angel groups, your group may never have the chance to fund the homerun that you’ve been dreaming about all your investing life.

Feedback from other investors – One of the best ways to discover whether or not a deal is worthy of your group’s funds is to run it by other investors.  If you get excited about a deal, pass it around to other groups, and they respond coldly, the deal probably isn’t as good as you think it is.  Sharing the deal with other groups may save your group millions of dollars.

I can hear the comments now: “Jeff, the concept feels good, but it just isn’t realistic.  If I share my dealflow with another angel group, they could feign disinterest to lure me away from a good deal, and then swipe it out from under my nose.”  I must conceed that this could happen, but it probably won’t.  Besides, when you measure the benefits against the risks, the increased quantity and quality of dealflow make it worth losing a deal every once in a while.

Good karma — What goes around comes around.  The angel groups that you share your dealflow with will likely turn to you when they have the opportunity to do so.  Plus, when you’re getting a substantial portion of your dealflow through referrals from other groups, your dealflow quality skyrockets.

The leadership of the four largest and most active angel groups in Florida — Emergent Growth, New World Angels, Springboard Capital, and Startup Florida — have a regular (perhaps weekly?) conference call to discuss new deals and possible collaboration opportunities.  If your group isn’t doing something like this with other angel groups in your region, get on the phone and start doing it as soon as you can.  Your portfolio will thank you.