Revolutionizing Angel Funding
[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].
Possible Insight 
Sounds like a smart model. Where shall I forward my executive summary?
Michael
April 21, 2009 at 2:02 pm
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
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[…] 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) […]
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Angel Funding Waiting for the World to Change
August 3, 2009 at 11:04 am
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
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
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
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
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
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