Navigating the Challenges and Opportunities Facing Angel Networks: An Evaluation of Angel Investment Models

Photo Credit: Colaborativo

When Alfredo Montoya founded Colaborativo in 2012 as an accelerator for enterprises, he didn’t know his work would evolve to mentoring entrepreneurs and investors. 

Knowing that he wanted to work with entrepreneurs, Montoya started the accelerator as a way to support early-stage startups that were trying to use business as a force for good and make the world a better place. As the accelerator program grew, Colaborativo staff began working with many enterprises that were not ready for mainstream investments and identified a need for funding, connections, and mentorship among them. Often, these enterprises might have identified one or two potential angel investors, or affluent individuals who provide capital for a startup, but many of these potential investors lacked in-depth experience as angels. As a result, Montoya and his team started providing those potential angels with mentorship to help them over the hump of investment and help expand the number of startups they consider for investments. This angel mentorship has evolved into an angel network, or a group of angel investors.

“We are like the referees between the investors and entrepreneurs, helping them communicate better,” said Montoya. “Each entrepreneur starts looking to their friends and family and connections and searching for people attending events. They make the first contact and we teach those potential investors how to invest in the companies.”

While the Colaborativo angel network happened organically and helps train potential investors, angel networks can vary in business model, structure and services – they can be nonprofit or for-profit, be member-led or have a manager, pool capital or coordinate individual investments, etc. However, in order to be successful, most angel networks have four qualities: 1) a critical mass of investors to support the costs of the network, 2) an adequate number of high-quality companies to invest in, 3) members that are experienced investors or entrepreneurs or that are willing to learn and 4) a trusting culture among members that allows them to confidently share expertise and investments.

To learn more about these different types of angel investment models as they relate to achieving successful impact goals and catalyzing economic development, the United States Agency for International Development (USAID) funded the Center for the Advancement of Social Entrepreneurship (CASE) at Duke University’s Fuqua School of Business to assess the current state of, and help identify engagement opportunities with, early stage investing by angel networks like Colaborativo in Latin America, the Middle East and North Africa and sub-Saharan Africa.

While the assessment is still underway, thus far, CASE has identified that most angel networks in these regions are either nascent, meaning that they are actively investing, but still developing their business model, or scaling, meaning that they are actively approaching a sustainable business model. CASE has also found similarities in the challenges that angel networks are facing related to their economic contexts and business models. Some of the economic context-specific challenges include: 1) lack of legal frameworks for early-stage investing, 2) biases against local early-stage investing and 3) the general lack of awareness, experience and skill in a small market. Related to business model, networks face challenges around: 1) achieving business sustainability, 2) maintaining skilled leadership and 3) exploring financing structures.

“As we’ve been interviewing angel network leaders and members, we are definitely seeing a similar set of challenges across regions in terms of achieving sustainable impact at scale,” said Carrie Gonnella, Senior Program Director at CASE who is leading the project. “We’re excited to be going deeper with case studies on a few networks to amplify some of the interesting, innovative strategies they are using to address those challenges. The case studies and our broader research is equipping us to recommend specific ways that development funders, like USAID, and others in the investment community can help bolster angel networks.”

Thus far, CASE has provided initial recommendations to support angel network growth in the impact space, such as providing education resource development and building regional capacity. The next phase of the project consists of case studies of six networks, including Colaborativo, which will show examples of how networks address various challenges, highlight lessons learned and recommend opportunities for engagement.

Stay tuned for more updates on the “Evaluation of Impact Angel Investment Models” project as CASE develops more recommendations and resources in the coming months. In the meantime, explore our current tools and resources related to impact investing by visiting our website or CASE Smart Impact Capital, an online toolkit that helps you find the right capital for your business.