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Angels in Boston: Globe column, responses, and bonus material

Posted by Scott Kirsner  May 14, 2012 09:56 AM

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Sunday's Globe column focused on whether we're seeing enough new angel investors come out of recent IPOs and acquisitions.

From the piece:

This month’s initial public offering of Facebook will mint a lot of new multimillionaires. No doubt they will spend some of their wealth on fast cars, private jets, jumbo-size boats, and stunning vacation spreads in Hawaii.

But as is the Silicon Valley tradition, they’ll also put some of it into a new generation of start-ups. Hundreds of Facebook employees will have enough money to become “accredited investors’’ in private companies - aka angels. The Valley already has so-called mafias of rich alumni from companies like Google and PayPal supporting new ventures. (The very first investors in Facebook, in fact, were members of the PayPal mafia.) And the money invested by Facebook employees and veterans over the coming years will be another energizing espresso drip into the Valley’s economy.

So where does that leave Boston? ...I wanted to understand whether our region is keeping pace, since it often seems to me that the bulk of Boston’s angels made their money in the 1980s and 1990s, at companies like Lotus Development Corp. and Avid Technology.

Here are some responses to the column, and bonus material:

- The first Halo Report on angel activity, issued in March

- Reports on the angel investing market from the Center for Venture Research at the University of New Hampshire

- Angel workshop taking place in Cambridge today

- This month's Angel Bootcamp Dinner

- Bob Mason, chief technology officer of Brightcove, is a relatively new angel investor in town. He writes:

...[F]or a long time the world of angel investing has seemed particularly opaque. For example, with my first successful company I generated enough capital that I could have started angel investing 10 years ago. Until the last year, that notion did not really cross my mind. It wasn't even a conscious decision — I didn't even know about the ecosystem or the network. Perhaps the Boston scene was more insular in the past, but has been opening up and encouraging for others. The visibility of programs like TechStars and MassChallenge really helps elevate the conversation.

- Ric Fulop is a serial entrepreneur who co-founded A123 Systems, a Waltham battery maker. He's now a venture capitalist at North Bridge Venture Partners.

Lack of angels is NOT a problem in the boston market. If a startup can't raise capital here, it's because there is either a problem with the business, their market or their team.

We back many deals each year with young first time founders. The reason I am doing venture instead of starting more companies is because I want to mentor and work with young entrepreneurs doing awesome new stuff. Since becoming a VC, I've backed two college drop-outs, and every one of my founders is a new CEO.

I was a 20-year-old entrepreneur at one point and was able to get angel investors in Boston multiple times before I raised venture. I don't think its a very different environment now than in '96 or '98. We have lots of seed funding options in Boston, most of [North Bridge's] deals start as seed, and there are several seed funding groups like Founder Collective as an example.

Angel investors are a very cyclical phenomenon. We had them in the late 90s and we have them again now. When things are great, they are always around but when markets get rough they are nowhere to be found...

- Entrepreneur and angel investor Scott Cohen writes:

Scott, I think you may be looking in the wrong places for "angels" in the Boston area. Though we indeed lack a singular mafia like Silicon Valley, there is a wider, more dispersed, under-the-radar group of early round investors that eschew the limelight or even the moniker "angel."

These early round investors, who are very active, are not tied to the big-name companies you mention, like Lotus, but rather to the oft-forgotten group of local companies that enjoyed extraordinary success in the region, like, say, Comdex (remember them?), which was acquired by Softbank for $864 million more than 15 years ago. Other “angels” made money at even smaller companies, which are typically under the radar of The Boston Globe’s Business section, but which achieved successful exits in the sub-$100 million range…often without VCs or investors to pay off.

Having been plugged-in to some of these “hidden angels,” I can attest to the fact that they are active and aggressive. However, unlike formal angel groups, they tend to operate out of the limelight, and comprise loose affiliations of individuals who have worked together in the past. As a result, they typically focus on specific industries, and often cultivate former employees as a “farm system” for investments—reviewing, funding and mentoring businesses tied to their field of expertise. Since the investors know and trust each other—having worked together in the past—and since the investors often know the entrepreneurs, they can move quickly on funding.

This model is sleek, efficient and specialized, as it enables successful executives in, say, digital publishing—who may have 25+ years of experience in the Boston area—to leverage their personal networks to review and fund businesses they love, understand, and can assist. They also often personally know their investees, minimizing risk by intrinsically trusting the entrepreneurs. One of these hidden angels recently pulled me into a pitch meeting at his house with a young entrepreneur, who was a former employee, noting, “This kid made me a lot of money.” That’s typical; hidden angels often know and trust their investees.

Hidden angels typically find little value in joining formal angel groups, where they may review disparate and random business pitches on topics they don’t fully understand, such as robotics, biotech, or the social Web. Those businesses are may be foreign to their personal experiences or core area of expertise, so the likelihood of investment is small, and the “time-wasting factor” for entrepreneurs is massive. In addition to that fundamental knowledge gap, the angels rarely know the management teams, and—as any investor or VC knows—management trust is everything.

The challenge for entrepreneurs, of course, is that they lack access or even knowledge of these hidden angels. To them, I would recommend leveraging former bosses, executives and experts in their target field, building the trust and respect that can be utilized to establish even more profitable relationships. Smart entrepreneurs already know this, and work hard to leverage their personal networks—not blind introductions—to achieve success.

So don’t misconstrue our lack of a “Facebook Mafia” as a death of angel investors; they’re out there, they’re just harder to find.

Your thoughts? I'm interested...

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About Scott Kirsner

Scott Kirsner was part of the team that launched in 1995, and has been writing a column for the Globe since 2000. His work has also appeared in Wired, Fast Company, The New York Times, BusinessWeek, Newsweek, and Variety. Scott is also the author of the books "Fans, Friends & Followers" and "Inventing the Movies," was the editor of "The Convergence Guide: Life Sciences in New England," and was a contributor to "The Good City: Writers Explore 21st Century Boston." Scott also helps organize several local events on entrepreneurship, including the Nantucket Conference and Future Forward. Here's some background on how Scott decides what to cover, and how to pitch him a story idea.

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