Possible Insight

Revolutionizing Angel Funding

with 18 comments

[EDITED 05/08/2009: see here] We are finally ready to go semi-public with our revolutionary new angel funding concept!  For the last year, Dave Lambert (the Tiltboy also known as Diceboy) and I have been working on an alternative mechanism for delivering seed funding to technology companies. [REDACTED 05/08/2009: see here].

Here’s the summary.  The market for seed capital is clearly broken. Most individual angels will only do about 1 deal per year, which means their portfolios lose money 40% of the time due to insufficient diversification. Even premier angel groups like the Band of Angels say they only do about 8 deals per year. Our math says you need to do 125 to achieve good diversification. On the other side of the table, only 14% of entrepreneurs who want angel funding will find it.  Those that do will spend about 6 months looking for money instead of building their businesses.

This is a sorry state of affairs for a market where the overall annual return is 25%+. Here’s a straightforward application of portfolio theory that can fix it.  Have a large enough pool of money so one entity can do 125-200 deals per year. Then use an online screening process to give founders a yes or no in two weeks. Obviously, there are a ton of details beyond this, but those are what we’ve spent the last year figuring out.  If you’re curious, let me know in a comment here and I will contact you privately.[Links to files REDACTED 05/08/2009: see here].

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Written by Kevin

April 20, 2009 at 11:59 pm

18 Responses

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  1. Sounds like a smart model. Where shall I forward my executive summary?

    Michael

    April 21, 2009 at 2:02 pm

  2. We should really talk.

    I founded an Angel Investing organization in 2007 with the intention of trying to figure out a sustainable model to alleviate some of the issues you discussed.

    Obviously I have an opinion or two on the subject if you would like some insight.

    Rachael Qualls
    Founder/CEO
    Angel Capital Group

    Rachael Qualls

    April 24, 2009 at 4:06 pm

  3. […] 27, 2009 by kevindick The majority of people like our idea for revolutionizing angel funding. Among the skeptical minority, there are several common objections. Perhaps the weakest is that […]

  4. […] Revolutionizing Angel Funding […]

  5. […] opportunity if it can be closed properly. This opportunity is partly what the so-called “black swan fund” is tapping into as well, but I’m talking here of a distinct effort, which we want your […]

  6. […] George “the Greek geek” Tziralis’s openfund; 2) Kevin Dick’s Black Swan Fund [via Daniel Horowitz]; and 3) the Awesome Foundation [via Foo Camp […]

  7. […] Revolutionizing Angel Funding « The Emergent Fool "Here’s the summary. The market for seed capital is clearly broken. Most individual angels will only do about 1 deal per year, which means their portfolios lose money 40% of the time due to insufficient diversification. Even premier angel groups like the Band of Angels say they only do about 8 deals per year. Our math says you need to do 125 to achieve good diversification. On the other side of the table, only 14% of entrepreneurs who want angel funding will find it. Those that do will spend about 6 months looking for money instead of building their businesses." (tags: investment workantile IFM business-culture business-model startups project-driven worklife entrepreneurs) […]

  8. […] investment opportunities. I’ve been meaning to post for three months now about Revolutionizing Angel Funding on The Emergent Fool. That post, by Richard Dick, talks about setting up a system to process […]

  9. Hi Kevin,

    We’ve put two years into a web based application for deal analysis that we license to nearly two dozen angel groups.

    You might want to save some time by using what’s already in place. You can watch a demo video and see a sample output report on the website below.

    http://www.venture360report.com

    happy to set up an account so you can give it a test drive.

    Alex

    Alex Bernstein

    August 5, 2009 at 4:10 pm

  10. Alex, thanks for you comment.

    I’m familiar with venture360. It’s definitely a better tool than going with gut feel. However, our thesis is that subjective evaluations of any kind are unlikely to offer much predictive benefit (i.e., alpha) at the seed stage. So we are almost completely avoiding this type of scoring approach.

    kevindick

    August 5, 2009 at 5:17 pm

  11. Kevin,
    I have been to the right side capital web page, but it still does not have a release date as to when you will be accepting applications. Also, I didn't see a range of funding that you will be offering. I think you have a great concept of funding, but I think you need to take it perhaps somewhat further, and assemble a network of tech professionals to help a starup. Looking forward to applying to your seed funding.
    Brett Radler

    Brett Radler

    September 3, 2010 at 10:36 pm

  12. Automated investment screening is a terrible idea. Automated resume screening has made it difficult to find good employees.

    Investing is about people, not bits and bytes. Your idea is a huge mistake.

    Rich

    May 25, 2011 at 6:04 pm

    • I’m not sure what evidence you have that automated resume screening is the _cause_ of difficulty in finding good employees.  The evidence is that unstructured face-to-face interviews are the worst way to screen for good employees.

      We’ll see if our idea works or not.  It’s fine if you don’t want to participate.  But given that it’s never been tried before, it seems premature to call it a mistake.

      Anonymous

      May 26, 2011 at 6:11 am

  13. Automated investment screening is a terrible idea. Automated resume screening has made it difficult to find good employees.

    Investing is about people, not bits and bytes. Your idea is a huge mistake.

    Rich

    May 25, 2011 at 6:04 pm

  14. […] Revolutionizing Angel Funding […]

  15. […] 05/08/2009: see here] The majority of people I’ve talked to like the idea of revolutionizing angel funding. Among the skeptical minority, there are several common objections. Perhaps the weakest is that […]


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