Having launched the first Tech Angel Club in Greece and after 6 months in operation, we spent this weekend thinking and trying to understand why the market has welcomed us in such a warm way and where our value proposition stands.
For this reason we created the following chart with some alternatives for individual investors, **(in)direct competition (although we try to think that there is none 😆).
By analysing it, we see that an individual investor can invest in startups with four main ways (a) as a solo angel (b) as part of an Angel Club (Such as THETI CLUB), (c) via an Equity Crowdfunding Platform or (d) indirectly as LP in a VC.
***Some advantages may be diantavtages for some investors and vice versa (depending on the investor’s profile).
***VCs mainly receive capital from Institutional Investors and secondly from Individuals – in this short analysis, we examine them as an investment option from an individual’s point of view and not as institutions.
- Solo Angel Investing:
- Low Cost
- Potential for High-Returns (although very risky to do it alone)
- Active Participation in an Investment (Hands on)
- You choose the startup to invest in
- You operate yourself without strict investment timelines
- Hard to create a high quality and consistent deal-flow (it’s a full time job)
- No Bargaining Power
- Hard to reach a relatively safe conclusion by analysing the business yourself
- No Scale of Capital (***Hard to close a round by yourself, many times the business will not raise the remaining of the capital – High Risk)
- Hard to Invest / You have to do all the work involved
- Angel Club (such as The Hellenic Tech Investor Club):
- Low Cost
- Potential for High-Returns
- Steady and high quality deal-flow
- Active Participation in an Investment (hands on)
- Be part of an exclusive peer Group with other sophisticated investors
- Mastermind Group: Discuss and analyse with the rest of the members the investment opportunities reaching safer conclusions / decisions.
- Have Fun by both participating in Investors’ Meetings (good food and drinks 🙂) and by getting involved with the investment!
- Achieve Scale of capital by co-investing with other angels
- Although part of an investors’ group, you operate yourself without strict investment timelines
- Bring your other investments and help them raise capital lowering the risk of these investments (yes, this is a value proposition that nobody can understand at the beginning!)
- Not the easiest way to invest (but not hard at the same time): Easier than Solo angels (since you can work with other investors on closing a deal) but harder that Equity Platforms and as an LP in a VCs
- Still the decision is on you and you probably are not a professional
- Not always the other investors of the group will want to support a business opportunity that you may be interested
- To become a member you should be either a successful entrepreneur or a C-Level executive with a strong business background
(C.) Equity Crowdfunding Platforms:
- Potential for high returns (this is an advantage and a disadvantage at the same time, since normaly returns on these platform are better than amature solo angels but at the same time are lower than experienced angels in groups or VCs)
- Ideal for inexperienced investors with limited investment budgets
- High Scale of Capital (The majority of the times the investment rounds will close d-risking to a degree the investment)
- Steady deal-flow
- Very easy to invest
- Cost: relatively high cost (and many times hidden).
- You never meet the founders in person (at the end of the day, angel investing is all about people)
- You can not participate in the success of the business
- You don’t really improve your investment reasoning
- Investment decisions rely on only provided information from a company that tries to polish and sell investments
(D) LP in a Venture Capital Firm:
- Professionals do all the work
- Potential for high returns
- Good diversification on a variety of deals
- High Cost (we all now that they are not cheap)
- Lack of involvement in the day to day operation (this can be an advantage for passive investors but not for the average angel type individual)
- No control on decision on where and how your capital will be deployed
- Transactional – No fun
- You can not help the company by providing extra value as a hands-on investor
- Long Investment Periods
Summing up, we can say that:
Solo Angel Investing: Is ideal for investors that do not want to build a portfolio of companies, but they discovered an opportunity in the market and want to exploit it.
Angel Club: For seasoned business people (Entrepreneurs or C-Level Exec.) who want to build a portfolio and invest in a more consistent and professional manner. They have the ability to understand and analyse investments. Moreover, they want to be active investors and provide not only money but expertise as well.
Equity Crowdfunding Platforms: Ideal for individuals with a small investment budget and limited experience.
LP in a VC: Ideal for individuals who either do not have the time or the knowledge to become angels – Hustle free with professionals doing all the work.
See you on the streets (hustling)!