Do Angel Groups Really Write Checks?

In my travels talking to entrepreneurs, when the topic of angel groups comes up it is often met with a dismissive, “Those guys never write checks.”  Are these entrepreneurs right?  Sometimes.   But the reality is that great companies with great teams often get significant funding from angel groups, and it is that funding that sets the venture up for future success.

In my last post, I shared how my own company raised $2 million from Tech Coast Angels over 2 separate funding rounds ($1M each).  Was this an anomaly, or the norm?  Well the best way to answer that is to look at the data…

In 2015, Tech Coast Angels provided $13.5M in funding to approximately 50 companies.  In addition to the direct funding, TCA also supported its existing portfolio companies in raising an additional $82M from outside investors (mostly venture capital and other angel groups).  The 2015 TCA annual report can be found here

So, it sounds like angel groups do indeed write checks.  However, the above numbers don’t tell the complete story.  The reality is that well over 90% of founders who apply to TCA for funding are not successful.  This is on par with the success and failure rates of other funding sources such as venture capital.  So why the sentiment that “angel groups don’t write checks”, if the probability of success is similar to venture capital?  I think there are a few reasons…

While VC terms include a defined funding amount (typically $3-5M for a Series A), angel groups have to solicit their membership for individual investment from each member.  Thus, the entrepreneur who has a successful pitch is asked to enter into a due diligence process where the funding outcome is not clear.  Thus, an entrepreneur may enter the process seeking $500K, but may ultimately be funded at a level above or below that number.  And sometimes, a company that has a successful presentation and enters due diligence finds that they are turned down for funding early in the DD process when members learn more about the company.  Unfortunately, since angel groups are comprised of members of different experience levels and demeanors, sometimes the entrepreneur who falls out of the process becomes convinced that these investors are not serious and are wasting the entrepreneur’s time.

I will explore that topic in my next post, titled “Are angel investors a-holes?”