The core of angel investing is about pouring money into an early startup by individual investors. This remains a constant theme. But how individuals choose to do such investment can vary greatly.
By and large, the approaches diverge between doing it individually or in a group context, with the boundaries often not too distinctly drawn.
On the one extreme of the individual approach is the lone ranger. A deep-pocketed individual just wants it all; doing it alone and grabbing the entire round, often with the objective to assert a dominant influence as an investor on the investee company.
A more pluralistic, yet still individually-oriented approach would involve an individual deciding to invest along with several other parties in a round, based either on pre-existing personal relationship, or just by happenstance in being drawn to and gathered around the same investment round. This approach is quite widespread and is taking on some group characters.
Group angel investment has evolved around the world for many decades, and can come in all shapes and colors. I recall hearing at the Asian Business Angel Forum in New Zealand a few years ago a speaker describing the angel groups or organizations across different Kiwi cities as structured all somewhat differently, reflecting local conditions. This seems typical everywhere.
However, by and large, group angel investment fall into three basic forms: angel network, angel club, and angel fund. Angel network typically offers a large group of investment-minded people an opportunity to view pitching by startups and engage in networking. In Hong Kong, the leading local organization of this genre is the Hong Kong Business Angel Network.
Angel clubs offer a more closely-knit environment to a smaller number of investors to share resources and collectively consider investments. One of the newest additions to the Hong Kong scene is PRD Angels, organized by a seasoned group of angels including this author.
An angel fund differs from a network or a club primarily in the fact that some parties (LP or limited partners) are entrusting funds to a management entity (GP or general partner). The structure is not that different from a typical venture capital fund, with differences being that the amounts at stake are often smaller, and the focus more on very early stage startups. Due to the fund entrustment element, an angel fund is a more legally complex arrangement involving securities law issues.
How should you, an intending angel investor, choose which way to go? I’ll dwell upon this question in my next article.
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