I woke up to the real world today after a great Thursday-Saturday stint judging the Rice University Business Plan Contest. If you want to read about a very strong field of new ventures, I posted about that on my main blog today.
I thought I’d add a note here about an interesting talk I had Saturday night, at the banquet celebration at the end of the contest, with Rudy Garza of G-51 Capital Management, about angel investors getting organized. Groups of angel investors in Texas are working together, he said. He mentioned the Central Texas Angel Network, the Houston Angel Network, and others; few of them familiar to me, but then I’m not from Texas. I’ve been on several judging panels with Rudy. He’s a smart, knowledgeable professional.
What he saw was a trend towards more organized deal flow and information sharing between angel groups working at earlier stages, and professional venture capital firms picking up the successful angel-financed startups as they take off. This isn’t a new idea, by any means; it just seems to be gaining popularity because when it works well, everybody wins.
It certainly happens often enough: the Web startups get routed through the angel groups to get going, create the prototypes, get the first bounce of users and traffic. The angels who put in the first few hundred thousand do it as convertible debt that converts to equity at the same ownership rate as the first venture investors, but discounted because they were there first.
As the ventures move up the scale from angel level to venture capital, they get seasoning and mentoring from the angel investors. The professional VCs get deal flow from the angel groups, as their deals evolve and mature into venture investment candidates.
I’ve seen signs of the same thing in my home state, where several Oregon-based angel groups are now linked together and sharing contacts and information.
One of the catalysts, as far as I can tell, is the emergence of angelsoft.net, whose website offers free services to angels and entrepreneurs, and paid services to VCs. It has information and posting for the angel groups and entrepreneurs, messaging and file sharing, so it helps the groups and the startups get organized, find each other, and share information.