Angel Investing is Where VC was 25 Years Ago

The angel investment ‘industry’ today is at about the same stage of development as the venture capital industry was in the mid 1980’s.

Last week, I was at the Angel Capital Association annual conference in Atlanta. It was exciting to share ideas with 400 of the most active angel investors, and angel group leaders, from all around the world. There were surprisingly large contingents from South America and Europe.

I presented a half day workshop on exit strategies for angel investors and introduced my new book

Few people appreciate that angels invest about as much money as venture capital funds do each year – about $25 billion in the US. The ratio seems to be similar worldwide. Entrepreneurs, government officials and the general population consistently underestimate the importance of angels to the financial ecosystem and the growth in the economy.

The biggest reason is that angel investing is still a relatively new phenomenon – the first angel groups were only formed about ten years ago. The graybeards at the ACA conference all agreed that a decade ago, there were only about 20 angel groups in North America. Interestingly, two of those earliest groups formed here in Vancouver.

As I attended sessions, and had conversations, on everything from deal structures to term sheets and deal flow to exits, it occurred to me that I had been in similar conferences about 25 years ago. Back then I was listening to parallel conversations about the development of best practices – but then it was in the venture capital industry.

When I was a young entrepreneur, part of our plan was to finance our growth with venture capital. We didn’t know anything about raising venture money and back then there were only a couple of books published on the subject. The internet hadn’t been invented, so I couldn’t read blogs or subscribe to twitter feeds.

To learn, I attended venture capital conferences. Back then, those conferences weren’t for the companies at all; they were for the guys starting and growing venture capital funds. The industry was so young that most of the conference organizers didn’t mind me attending as long as I paid the full fee.

I recall sitting in rooms with about the same number of attendees and listening to a similarly small number of presenters who were willing to share what they had learned.

In the early to mid 1980s, the average venture capital principle only managed about $3 to 5 million. That felt like the same ballpark amount that the senior guys in Atlanta last week had to invest (ignoring inflation.)

At the conference last week, there were enthusiastic discussions about forms of investment, term sheets, pre and post investment relationships with entrepreneurs and VCs, portfolio management and valuation.

Those are the fundamentals. The basics. At ten years into the development of the angel capital industry, we are just starting to have the important discussions about how angel capital works, how we can best help entrepreneurs grow new companies and how we will contribute to the 21st century economy.

Just about the same place the venture capital industry was 25 years ago.

There was open discussion in Atlanta about the fact that lots of angels haven’t made money yet. Lots have lost most of their portfolio. Some have given up because they haven’t been successful.

That shouldn’t surprise anyone. Today’s angel investors are the pioneers. We are just starting to figure out what works and what doesn’t. It will be another five or ten years until we have accepted best practices. We angels have a fascinating decade ahead.

Angel investors are especially important at this point in the history of the world. The traditional venture capital model seems to be broken. The global economy is not as healthy as we’d hoped.

I have no doubt that a decade, or two from now, as the boomer demographic is coming to the end of their peak angel investment years, it will be recognized that angels and entrepreneurs played a large role in revitalizing our global economy.