VENTURE CLUB
5 reasons why business angels co-operate and join clubs
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Vitaly Polekhin, one of the most active angels in the country, head of investors club of Skolkovo Business school and vice-chairman of administration board of National Association of Business Angels explains why angels establish associations and what boots it.

Successful entrepreneurs, executives or simply people with money often face a desire to not only increase their assets but also find new opportunities for business. The great example is angel investments in seed period when they become not only investors but also partners who bring in experience and connections apart from money. At that, you can only be an entrepreneur in one project, but a business angel — even in hundred, if handled properly.

Yes, angel investments are indeed very appealing and profitable, but there are some peculiarities. That is risk management — you need co-investors — and pipeline (flow of projects) quality. Of course, that is expertise (you are interested in a lot of stuff, but your experience is limited), due diligence, deals structuring and further management, project control. That’s why experienced angels unite into clubs, clubs unite into associations and newcomers are actively joining them. From the dozens of reasons to invest while being in a club, I would particularly empathize five.

1. High-quality projects pipeline

Well-known venture funds are always a go-to choice of every entrepreneur who is thinking about bringing investments to startup. Investors communities and clubs are in the same list. That’s where the cream is skimmed off the projects which are going through the best organizations. The next stop is simpler organizations and if an entrepreneur got the raw end of the stick there, he tries to find “just money”. In most cases, if a startup ended in hands of the usual amateur business angel, one can be assured that entrepreneurs have already knocked at every door without success and, with some minor exceptions, it’s no coincidence. Investments on seed market are already complex due to quite a few uncertainties and risks, so the access to high-quality startup poll is crucial for a business angel. Remember: “trash in — trash out”.

2. Co-investing

Every experienced business angel knows that it is dangerous to invest in 1-2 startups. There is a possibility to lose it all. And although you can’t invest your last money that you are not willing to lose forever in venture projects, when the number of investments is growing, the risks are getting lower. That’s why you have to invest in at least 10 startups in the course of one or two years. That is possible only if you syndicate deals with another investor. For example, in our club on to 5 co-investors gather to invest in a startup. Portfolios are made in which are going to be not only good or bad companies but also stars, which cover losses from bad ones and increase angels general investments. Only very lucky ones can ignore this key investing concept in seed period, but for these, it’s easier to go and put all eggs in one basket.

3. Experience and expertise of the club’s members

Although most business angels are people who built their own business or experienced in managing large companies, their personal experience and knowledge are limited and there are always more and more interesting things outside of one’s remit. The expertise of other members is a serious tool which is used to analyze potential investment projects. Connections, experience and knowledge in particular branches — you can develop it on your own for the years, but in a club you can quickly share and effectively exchange it, raising the probability of success and the level of profit from startup investing. It’s all to not to pick a shepherd's dog while picking the best sheep from a herd.

4. Lead investors

When the pipeline and finances are good, that raises a question of every angel’s limited physical capabilities. Making a deal to the end with proper carefulness costs time and effort. That said, in angel investment, you cannot entrust these processes to a regular assistant, but you can entrust them to another lead investor, who votes for this projects not only with his or her experience and expertise but first of all with money. It’s hard to always be the lead investor. Sometimes you can just join deals in club — other angels inspect, do due diligence, structure and control them. That helps to not only relatively securely raise deals quantity in a certain time period, but also diversify a portfolio, investing in new industries or geographies, of which other lead investors may have a much better understanding.

5. Source of new knowledge and experience

Club is a place where it’s members not only share their experience in investment during particular deals, but also gain specialized attainments on mentor’s sessions, club meetings, educational programs in seed and venture investment. We do educational programs on private capital and venture investment for our members annually, inviting — with help from our partners — leading professors from well-known business schools from all over the world and top speakers from venture funds, development institutes and business angels communities. In May of that year or group of 10 people went on educational program at UC Berkeley, where famous business angels and venture investors of the Silicon Valley shared their knowledge and experience with club members. Last weekend we participated in the remarkable program in Kaliningrad called "Ready for Equity", prepared by RBK, SmartHub and National Association of Business Angels, where heads of business angels clubs, startup accelerators and seed funds educated newcomers on rules of seed and early investments. Tell you a secret: we as the club for investors are preparing the new interesting program for Autumn, where we are going to seriously improve the knowledge of participants on seed and venture investments with the help of top professors and market representatives.

To gain funds for start-up and initial development from business angels — it’s the easiest way for an entrepreneur. That’s why business angels are the most powerful tool for supporting startups on seed market. Business angels, unlike venture capitalists, have less responsibility and more trust in their instincts. But when merged into clubs, they broaden their capabilities and lessen financial risks. At the end of the day, supporting startups while “gaining experience” and increasing capital is not the same thing.

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