Double Click
How angel networks select which deals should pitch to their members
In the last few years, I’ve had the opportunity to purchase two different homes. The first was in Lewisville, TX, which we sold in 2021 to purchase our current home in College Station.
Here’s how the process generally worked, through the lens of Angel Ops:
Source: Pick an area, find a realtor, and get access to the MLS.
Evaluate: Set the filters (location, budget, size, layout, etc), look online at any that meet requirements, and create a short list of homes we liked and wanted to visit in person.
Engage: Look in person at the shortlisted properties.
Close: Make offer(s), negotiate, & close the sale.
Monitor: Keep up with the property over time.
What does all this have to do with early-stage investing? Today, we’ll discuss the second step in the Evaluate phase of our Angel Ops framework: Finalize Selections, and I think the real estate illustration is a helpful comparison. Of the two homes, our first was the most involved (mostly since we had no idea what we were doing), so I’ll use that experience as the primary example.
Let’s get into it.
Double-Click
After running our preliminary search in the summer of 2019, we found 50+ homes in the Lewisville/Flower Mound, TX area that could have been a fit. But by the time we (Dani and I) signed on the dotted line, we had only visited about a dozen properties in person.
Why the difference?
Simple: it’s costly to double-click.
Every home we visited cost us time and energy. We’d have to indicate to our agent that we wanted to see a property, schedule a time when we were both free that also worked for the seller, and finally get in our car to go visit the place. Plus, at the time the seller’s market was just beginning to pick up in the area. Sellers would list a home on Friday and accept an offer by EOD Sunday, so it was often a mad scramble just to view the property before it sold. It was not realistic for us to visit all the homes in the “qualifying pool”, so we did our best to select the best fits and focus our limited time on those.
It was tough to identify which properties were most interesting. But, since my wife and I were the only ones involved in the decision, we were able to work together and make those calls fairly quickly.
For angel network operators, things aren’t quite so simple.
It’s Complicated
Technically, Dani and I could have visited as many properties as we wanted. We were the only ones involved in the decision, and we were on the same page with what we were looking for.
In contrast, angel network operators (typically) have a strict limit on the number of companies they can invite to each pitch event (generally 3-5 due to time constraints). They are serving dozens of members with varying backgrounds. Their members are often looking for different characteristics, and come to the table with an amalgam of expectations and interests.
So how do angel network operators sort through all the qualifying applicants to decide who should present? That’s the focus of today’s job: Finalize Selections.
Supporting Job #5: Finalize Selections
As a quick refresher, Angel Ops, which I introduced in this post, seeks to map an answer to the following question: What does the process at a world-class angel network look like? Angel Ops is focused on the backend process of running deals and groups the workflow into 5 core steps. In last week’s article, I introduced the first job within the Evaluate step: Screening Candidates, which involves filtering out deals that are clearly not a fit for the network. The overall objective of this phase is to identify which deals are a good fit for the network, which culminates in an invitation to present to network members.
Evaluate
Job: Identify which deals are a good fit for the network.
Progressive Outcome (PO): Invite - The best applicants are invited to present.
Within each core step, there are 3 “supporting” jobs-to-be-done that contribute to the primary job. This week, we’ll explore the second supporting job within the second step: Finalize Selections.
Dictatorship or Democracy?
At its core, the angel network’s job of Finalizing Selections boils down to this: someone has to make the hard decisions and pick the best 3-5 deals to present to the membership at each event. The factors that contribute to that decision should vary from group to group based on the interests, goals, culture, etc of the membership (see What This Framework is Not). Thus, this step is focused on the organizational structures that enable those decisions to be made.
I’ve seen networks handle this step in a variety of ways, but there is one fundamental question that deeply influences the process structure: dictatorship or democracy? Each style of decision-making comes with pros, cons, and required processes, and I’ve seen each employed successfully. Below is a simple graphic illustrating the scale, with a “committee” style serving as a middle ground between the two. Let’s break them down.
Dictatorship: One individual, typically the Executive Director (ED) or similar role, makes all decisions about who should present.
Pros: Fast and simple. No need for time-consuming debate, communication, or complex organizational structure. No participation is required from members. Can get away with low-cost weak/informal processes at the evaluation stage.
Cons: Limited insight into what membership wants to see. There is a tremendous amount of pressure on the ED to make the right decisions, and this can be very difficult for someone with limited experience and/or a limited dataset on what membership typically prefers. Can be inconsistent if weak processes are in place.
Required Processes: None. ED could drive the whole thing themselves, but I often see them bring in a student/volunteer team to take a first pass and filter the applicants down even further.
Democracy: The members decide who should present, typically through some kind of vote.
Pros: Very clear insight into what the membership wants to see. Since members vote on who they want to pitch, they’re often more “bought-in” on each deal, which can increase the likelihood of investment. Much lighter load on the ED from a decision-making standpoint.
Cons: Requires strong and consistent process. Since communication is distributed to and collected from the entire network, usually requires some use of technology. Requires more participation from members. Can be slower.
Required Processes: Significant. In my experience, this approach ubiquitously requires a pre-screen. Once qualifying applicants have been identified (prior step), the ED, a student team, or some other group filters that list down again and then generates a consistently formatted deliverable summarizing company details to submit to the membership for their vote. Clarity and consistency are key to successful implementation of this strategy.
Committee: A small group of members makes decisions about who should present. The committee can be hand-selected by ED, voted on by members, or composed of volunteers.
Pros: Hybrid of the other two; relieves the burden from ED and places decision-making responsibility in the hands of the most engaged members of the network. Can get away with a semi-structured process.
Cons: Hybrid of the other two; slower than a one-person structure. Can be unevenly influenced by loud “swing member” personalities. Must be maintained and organized; turnover and consistency can be a challenge. Can be a higher cost option if committee meetings are held in person due to need for logistics and accommodations.
Required Processes: Moderate. The main structure required here is maintenance and organization of the committee, and making sure the information they need to evaluate qualifying deals is consolidated ahead of time. Consistently formatted deliverables and a pre-screen tend to also be helpful.
Final Thoughts
Thinning the applicant pool from “qualifying” to “most interesting” is a crucial step in any angel network’s process. In the same way a buyer can’t afford to visit every interesting property in-person, a network can’t afford to give every applying company a spot to pitch. To make those critical filtering decisions, a dictatorship, democracy, or a committee-led process can each work well under the right circumstances.
What do you think?
Which decision-making style does your network employ? Which works best in your experience? Are there other models you’ve seen work well?
Weekly Observations: 3 Lessons Learned
Calm control is the mark of an expert.🧗
After months of peer pressure, this week I finally caved and signed up for a membership at our local climbing gym. When climbing with a friend of mine who is much more advanced, I noticed the way he moved on the wall and the way I moved were starkly different. I climb a route kind of like a beached walrus - usually flopping around trying to brute force my way through. But he moves with intentionality, grace, and control that reflects years of training and hard work. It’s impressive to behold, and the concept translates to any other skill.
Numbering your days is humbling.⌛
This week I lived my 10,000th day. According to a recent CDC report, the average life expectancy in the US is 76.1 years. That works out to about 28,000 days. I obviously have no idea what tomorrow holds, but assuming I’m “average” and live exactly that long, that means I’ve experienced 36% of life. To mark the occasion, I spent some dedicated time reflecting on where I’ve been, where I am, and where I hope to go. I started keeping track years ago after reading Psalm 90:12, which says “Teach us to number our days, that we may gain a heart of wisdom,” and have found the practice to be deeply humbling.
They made a trust equation. 🤝
I love simple frameworks, and this week I found one for trust. It’s qualitative, similar to the motivation equation I introduced a few weeks ago, and boils down to (Credibility + Reliability + Authenticity) / Perceived Self Interest. I stumbled across this long but helpful article breaking it down from First Review (credit to Lenny Rachitsky from his latest podcast episode), which draws from The Trust Equation by Steven Drozdeck and Lyn Fisher.
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.