I Trust You
How strong peer relationships keep an angel network's pipeline full
Me: “We’d like to do x, but have not yet worked out the details of how. We’ll keep you in the loop, but are you ok with us moving forward once we do?”
Client: “Absolutely - be sure to keep this 1 thing in mind, but I trust you guys.”
This was the exact conversation I had with a client this week. It felt totally normal. And yet, as I reflected on the interaction afterward, I realized the trust and mutual respect we’ve built has created a tremendous amount of freedom to go solve problems on the client’s behalf without needing to be micromanaged. This required a huge amount of time and resources to build but was worth every penny.
Relationships are built on trust, and this is the first supporting “job to be done” I’ll discuss for an angel network operator: to build and maintain relationships that provide access to incremental deal flow.
Relationships are Everything
If B-school taught me anything, it’s that relationships are everything. There are dozens of fun sayings that center around this basic concept, such as “your net-work is your net-worth,” or “it’s not what you know, it’s who you know.” This is as true in the angel investing world as it is in any other community composed of a group of human beings.
This concept is critical to understand in the context of an angel network operator seeking to fill their pipeline. Strong relationships with the right people can expand a network’s access to compelling investment opportunities.
Before continuing, I should clarify what I mean by “deal flow”.
What is Deal Flow?
According to Investopedia, “Deal flow is a term used by investment bankers and venture capitalists to describe the rate at which business proposals and investment pitches are being received.” For an angel network, I see this used as a reference to the volume of applications received.
Investopedia continues its explanation with this very helpful statement: “Rather than a rigid quantitative measure, the rate of deal flow is somewhat qualitative and is meant to indicate whether business is good or bad” (emphasis mine). This description rings very true in my experience. Some operators do keep tabs on the exact number of applications received per month, but most appear to be satisfied with general statements like “we receive dozens/hundreds of applications every week/month/year.”
Even though most applicants do not progress to the next step in a network’s process, conventional wisdom states that more options = better. The idea is that the more companies a network can review in a given period, the better odds it has of discovering a winner. Surprisingly, while most groups I’ve met are constantly looking to expand their deal flow, a few tell me they have plenty.
Why Some Networks are Full
I’ve spoken to several groups who “don’t struggle with deal flow at all,” and for whom the deals “just show up”. Why is that? I believe there are 3 main reasons:
They have a powerful brand and receive substantive inbound interest.
They have many well-established members who bring their own startup investments to the table.
They receive referrals or introductions from other trusted industry players (this may include other angel networks, VCs, family offices, and others).
We’ll talk about #1 next week when I touch on the next job-to-be-done. #2 is the natural outcome of a growing and thriving network - as I discussed in my article “A New Framework” a couple of weeks ago, a core part of a network leader’s role is to cultivate strong membership involvement. Let’s explore #3 in the context of the Angel Ops framework.
Supporting Job #1: Build & Maintain Relationships
As a quick refresher, Angel Ops seeks to map an answer to the following question: What does the process at a world-class angel network look like? It is focused on the backend process of running deals and breaks things down into 5 core steps. The first step is to Source deals, the overarching job-to-be-done here is to bring in sufficient deal flow to operate the network, where the Progressive Outcome is founders applying to pitch (either formally or informally).
Source
Job: Bring in sufficient deal flow.
PO: Apply - Founders apply to the network.
Within each core step, there are 3 “supporting” jobs-to-be-done (I’m still working on the right name for them) that contribute to the primary job. In this case, the first supporting job to bringing in sufficient deal flow is to build and maintain relationships.
This can and should include all relationships relevant to the network. However, given the context that the core job being discussed here is to bring in sufficient deal flow, it is specifically focused on growing relationships with prospective sources of deal flow. Said another way, I believe that it is the angel network operator’s unique responsibility to cultivate relationships with peer industry players to obtain access (see weekly observation #2 below) to strong sources of deal flow.
How?
I’ll never forget my experience reading Angel by Jason Calacanis early last year. If you haven’t read it yet, prepare yourself - it’s quite the experience. Whether you like the guy or not, he touches on some great points. One of those points is that the simplest way to get access to the best deals is to tap into the human tendency towards reciprocity by “trading”. Essentially, be willing to share yours first, and others are likely to reciprocate by sharing their deal flow with you, which enlarges the pie for everyone.
I’ve seen angel network operators take a similar approach. Some groups are more well-connected than others thanks to the initiative and engagement of their leadership teams, but it’s commonplace to see angel networks share their most promising opportunities. It is especially common when there is substantive investment interest in a deal, but not enough to fill out a founder’s round. There have been several attempts over the years to strengthen and formalize these mutually beneficial partnerships, though my perception is that none have been unilaterally successful. I’m personally interested in learning more about and supporting this type of collaboration, so please give me a shout if you’re involved in anything of this nature.
Beyond other angel groups, there is an entire ecosystem that is probably interested in being connected to your angel group in some way. Each of these entities has a different type of interest, but all could become valuable sources of deal flow. The list could include VCs, family offices, syndicates, incubators, accelerators, coworking spaces, and tech commercialization programs, just to name a few.
Closing Thoughts
These relationships don’t form overnight. Just like it took years to form trust with the client I mentioned in the opening, it takes time to build & grow trusting relationships within the early-stage ecosystem. However, over the long run, I firmly believe an angel network operator’s choice to spend that extra time to attend networking events, schedule catch-up calls, and share the best deals with his/her network is well worth the effort.
What do you think?
What are some of the most creative ways you’ve seen angel network operators build & maintain relationships across the early-stage ecosystem?
Weekly Observations: 3 Lessons Learned
Valuation is stressful for founders. 💵
Founders (at least, the ones I talk to) hate the process of negotiating a valuation. I was speaking to one this week, and he summarized the general sentiment well when he said “it feels extremely arbitrary, it’s driven by market sentiment, and there are so many methods that I have no idea where to start.”
Access = value. 🎸🎮
Access to an experience is valuable and is something I’m thinking about this week as we create and iterate. Two of my personal experiences from the week brought focus to this concept:
#1: On Thursday my wife Dani and I went to an All Time Low concert at the Moody Center in Austin. It was a blast. She’s a concert junkie, so we happily paid extra to be on the floor. But there was a small group of superfans who got to enjoy the concert from the side of the stage - my guess is they paid 3x what we did for that backstage access.#2: Blizzard’s latest title, Diablo IV, was released yesterday. I had some downtime over the weekend and was surprised how tempted I was to spend the extra $20 to purchase the “deluxe” edition, which provided access to the game several days before the full release.
Inefficiency = Opportunity. 🗣️
Most angel networks we’ve spoken to have mentioned at some point how difficult it is to give good, consistent feedback to founders. Most founders we’ve spoken to have mentioned at some point how disappointing it is when they don’t receive good feedback from angels because they’re left confused and unsure of where they went wrong. Well, since we’ve now analyzed 200 companies, we figured this is something we could help founders with - an opportunity💡. So this week we kicked off an alpha run for a new service offered exclusively to founders referred by our existing clients. It’s pretty simple - we basically run the founder through a “practice run” of the entire Angel Ops process and give them thorough feedback at each step. This includes an evaluation of the strength of their application, screening interview, pitch, deep dive diligence & data room, and follow-up plan. Exciting times!
About Me
I cultivate flourishing.
I'm also the CEO of PitchFact, where we help angel networks conduct efficient and collaborative diligence. I'm a proud husband, aspiring father, and grateful friend. My love languages include brisket, bourbon, and espresso.
About PitchFact
PitchFact helps angel networks conduct efficient and collaborative diligence.
Learn more at pitchfact.com.