From Chaos to Order: How to Manage Your Angel Group

Editor’s Note: In a recent post, Angels Finding Strength in Numbers, readers collectively agreed that investing in a group is a better option. Angel groups are either member-led or professionally managed by non-affiliated managers. Here, we discuss the differences between these two approaches.

Like all grassroots-style growth, organizations that start out of necessity might begin informally but will soon self-organize. Angel groups are an excellent example. When a single angel investor might not be able to (or might not want to) accept the risk of an investment on their own, they might band together with other angel investors to spread the risk, leverage a greater set of strengths, and share the reward. Soon, these groups discover that they need rules, guidelines, and a sense of order to help everyone get along and make decisions. With an increasing number of angel groups (according to Wikipedia, in the US, there were 10 groups in 1996 and over 300 in 2008), organization becomes a necessity.

This usually results in two types of angel group management – member-led or professionally managed (i.e., by a non-member). But which one is better? If you’re an angel thinking about forming a group, or you’re a budding angel group wondering what the next step is, here are some things to consider when thinking about your preferred management type.

Head in the game. A member-led group has the advantage of knowing the needs and interests of its members far more intimately than a professional manager. However, that is not to say that the professional manager is unable to perceive and work with those needs and interests. On the other hand, every investor (whether angel or stock market) knows from experience that having a piece of your own money riding on every decision can sometimes force you to make rash decisions or unrealistic demands; a professional manager would be one-step-removed from that level of buy-in and might bring a degree of rationality to the table.

Bias. Each group will structure its member-led leadership differently, but the challenge arises when aggressive or highly convincing members compel other members’ decision-making. Thus, a member-led angel group can become a hegemony instead of a democracy. A professional manager has less buy-in to bias his or her opinions and a good professional manager will make sure that each member’s insight and contributions are valued.

Specific skill-sets. Angel investors bring their own skill-sets to the group. In many cases, those skills include helping start-ups to grow in various ways. Chances are, they are not managers who are necessarily good at playing the business-politics game. A professional manager can be helpful here. These managers might not be able to transform a start-up into a going concern but they have their own invaluable skill-set that understands the subtleties and complexities involved in getting a group of individual investors to collaborate effectively.

Long-term angel group goals. When deciding on whether a group should be member-led or professionally-managed, the long-term goal of the group must be kept top of mind. Members of angel groups are likely going to be busy finding investments, performing due diligence, and working with start-ups. They can easily become spread too thin with so many commitments. A small angel group that wants to stay small – almost more like an informal club of colleagues – may do well over the long-term as a member-led group. However, a professional manager offers value in helping members manage their time. The manager might be able to minimize the searching and due-diligence effort, allowing angels to spend more time with start-ups. So, an angel group that wants to expand should probably consider bringing in a manager.

Bottom line: Return on investment. A member-led group will take time and effort, which are resource that might better be spent on start-ups instead of group management. However, a professional manager will cost money in salary, overhead, and operating budgets. It’s a trade-off and any angel group deciding on whether member-led or professional management is right for them needs to think about the potential return on investment from each decision. And that’s a consideration that every angel spends their time thinking about anyway.

What else would you add to the list?