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Angel Insights Blog

Friday, March 05, 2021 

Five Tips to Activate New Angel Investors

By: Amy Duncan, Fund Manager – San Diego Angel Conference (SDAC) III

The number of accredited angel investors in the U.S. has held steady at around 300,000 for the last ten years. Based on the definition of an accredited angel of a net worth of $1 million or more, the potential number of angel investors could be up to four million. As angels are typically characterized as making individual investments between $25,000-500,000 in early-stage companies, it’s likely that many who are qualified have a lower risk appetite. 

With the launch of Regulation Crowdfunding (Reg CF) under the JOBS Act in 2016, investors can now participate in equity crowdfunding. This arrangement makes use of the special purpose vehicle (SPV), or sidecar, to pool funds from multiple investors, with minimum investments around $250. Spawning the new micro-angel, equity crowdfunding has witnessed the number of investors participating in successful offerings increase from 77,558 in 2017 to 147,448 in 2018 (CFCA). Perhaps new investment options are a way to attract new angel investors.

When the San Diego Angel Conference (SDAC) was founded in 2018, the aim was to activate new angel investors. There was a need to connect entrepreneurs coming out of a Small Business Development Center (SBDC) training program to investors and funding. Mirroring the entrepreneur training, SDAC provides investor training through an enhanced pitch competition run over a three-month series of events that culminate in a one-day conference, where a winner is awarded funds raised by the investors. In 2021, SDAC is running its third conference, in spite of COVID, and continuing to attract new accredited angel investors. Reflecting on the early success of SDAC, to today being one of the largest angel conferences and startup pitch competitions in the country, following are five tips for activating new angel investors.

1. Set a Low Financial Threshold

Leveraging the sidecar trend, SDAC uses an SPV to raise funds from investors. Pooling money allows many small contributions to add up to significant funding for the entrepreneur. The minimum SDAC investment is $5,000—with an additional $1,000 for program management and fund administration. The goal is to raise at least $200,000 for the winner. In both SDAC I and II, fundraising exceeded $500,000, allowing for funding of a total of six companies. 

2. Have Little to No Investment Thesis

An investment “thesis” is a set of guidelines investors use to guide their investment decisions. As a fund that activates new angel investors, the goal is to provide exposure to a wide variety of industries, deals, and founders. By not restricting the types of companies that can apply for the competition, investors can evaluate a spectrum of deals and gradually build a thesis that fits their investment style.

3. Provide Education on Investor Basics

Many angel investor groups provide training and continuous education for their members and SDAC is no different. It’s even more important in attracting people new to investing. In what is referred to as the Angel Academy, SDAC has held in-person two-day trainings and one-day online sessions to onboard investors. Topics not only include the basics of angel investing and due diligence, but also cover the differences between a software and biotech investment, pitch analysis, and feature guest presentations by members of Tech Coast Angels, San Diego (TCA-SD).

4. Actively Engage in Startup Evaluation

At the core of the SDAC experience is the opportunity to evaluate deal flow. Investors start by simply reviewing at least 100 pitch decks and submission packages in Gust, an online platform that securely stores company information. Through subsequent rounds of presentations and Q&A, investors vote to narrow the field to six finalists. The learning intensifies when investors break into teams and conduct due diligence and write reports. After thorough review and discussion, investors vote to determine the winner and whether to distribute additional funds to other finalists. This learn-by-doing process provides investors a foundational framework for evaluating future deals.   

5. Host Events to Foster Networking

One advantage to joining an angel group is drawing on the knowledge and expertise of others. Fostering connections among investors is key to fostering a thriving angel group that cultivates respect and growth. SDAC I and II were able to cultivate relationships by hosting dinners before each event. In an online environment, SDAC III has made use of small teams for the initial deal review, utilizing the communications and review tools in Gust. Pre-event networking with Zoom breakout rooms have been effective at helping investors network, along with frequent communications to keep investors informed and engaged.

SDAC has activated at least 66 new angel investors who have gone on to join other angel groups, investing over $2.5M in over 50 deals. Lowering the barrier to entry is one way to help attract the nascent angel investor. Adding value through hands-on education and peer networking goes further to enhance the experience to advance angels along their investing journey.    

About the Author:
Amy Duncan is an entrepreneur and investor with over 20 years’ experience working in the life sciences/biotech industry. Through her company, Goldfish Consulting, Inc, she works with scientific founders to develop positioning and messaging in preparation for commercialization. Active in the local startup community, Amy is communications chair for the San Diego Entrepreneurs Exchange (SDEE), member of Tech Coast Angels, San Diego (TCA-SD) and fund manager for the San Diego Angel Conference (SDAC) III. She has a BS in biochemistry from UC Davis and an MBA from San Diego State University.

Tags: Angel investing  Investing Best Practices

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