Marianne Hudson European Business Angel Ecosystem

“Talk to as many angels as possible before you start investing!”

While the European Business Angel Ecosystem is yet to mature, it is already well established in North America. In our interview, Marianne Hudson, Executive Director of the Angel Capital Association, explains differences and similiarities in the angel ecosystem in Europe an North America.
First, please tell us a little bit about yourself so that our readers get to know you better.
I have led the Angel Capital Association, the professional association of angel investors in North America, for six years and helped in its startup before then. ACA has 200 member angel groups, which is about 8,500 check-writing business angels.  I’m based in the Kansas City, Missouri area – right in the middle of the United States – because our angel education and research work got its start from the Ewing Marion Kauffman Foundation, a philanthropic foundation in Kansas City and I wanted to stay here.  I am an angel investor myself and belong to two angel groups in Kansas City (both ACA members, of course).  It has been great fun to work with angels here and other parts of the world. While no two think the same way, I find they really want to share their experiences and ideas with each other, and are just a lot of fun.

How well are business angels organized in North America?

It’s interesting.  ACA has about 375 American angel groups in our database, which may be the most of any country in the world.  However, about five percent of all American angels belong to angel groups.  Instead they invest individually or through informal groups of friends.  I believe the groups are very important as the hubs of deal flow in their communities, often connecting with other smart investors in their social networks.  They also syndicate with “unaffiliated” angels, family offices, VCs, and other private equity investors.

Many American and Canadian angel groups are very active and sophisticated, and importantly they have become very good at co-investing with each other in order to provide the amount of capital that innovative entrepreneurs need while diversifying their investments.  About 70 percent of these groups are networks, in which each investor decides whether they want to invest in a particular company.  Another 22 percent are funds, where members pool their capital up front and then take a majority vote on investment opportunities, and the remainder are networks with sidecar funds, kind of a cross between networks and funds.  In North America, all angel group members must meet specific requirements for wealth or income because of our securities regulations, and many groups set guidelines for total investment and participation in the group, such as serving on a due diligence team.

Do individual business angels tend to behave differently in North America than elsewhere?

That’s a good question, and I don’t completely know the answer.  From the people I’ve met, I would say there are often similarities in how angel investors throughout the world make investment decisions.  It may be that North Americans are not quite as conservative or risk averse as investors in other continents, but I always need to point out that much of America is very different than Silicon Valley or Boston – there is plenty of fear of failure in large parts of the US and Canada.  Another difference might be that American angels are more privately based than many other countries, meaning that there is less connection to government support programs and policies.

In the US and other countries that have been involved in formal angel investing for a longer period, there is likely a larger percentage of the business angel community focused on what happens after an investment is made.  How do we as angels make sure the entrepreneurial company successfully grows and exits?  There is considerable focus on mentoring, being a good board member, connecting companies to follow-on investors and partners, and helping portfolio companies through the corporate acquisition process.  This is good for the entrepreneur and the investor.

What kind of training for business angels do you have in North America?

ACA’s education and research partner, the Angel Resource Institute, is a global leader in educating angel investors, entrepreneurs, and other key parts of the startup support community.  ARI conducts 60 to 70 in-person seminars and workshops every year, mostly in the US but increasingly in other countries.  The focus is on practical best practices in angel investment, from thinking through portfolio strategies, to finding deals, screening and due diligence, term sheets, valuation, and supporting the companies post-investment.  ARI also has courses on how to start an angel group, trends and statistics in raising equity capital, and pitching to investors.  ACA supports these workshops with two professional development conferences each year – 660 investors attended our 2013 ACA Summit in April.

These one-day or half-day courses are a great way to build investment skills and activity.  Many long-time angels have said they wished they had taken the seminars earlier, as it would have saved them lots of money they lost.  We know, however, that many angels need shorter, on-going training via the Internet or through monthly angel group meetings.  So ACA, ARI, and other organizations put on Webinars and provide quick background for quick education sessions.

What would be your most important advice for future business angels?

There are so many things, but I think it is important to talk to as many angels as possible before you start investing and read up on best practices and experiences of good angel investors.  This can help you set expectations, understand some basic terminology and practices, and help begin your personal strategy for angel investment.  It may also help you understand the value of angel groups and getting some education in the practice of angel investment.