Investor’s Circle, the 20-year-old network of mission-driven angel investors, has survived the long economic slowdown and a rough organizational patch and appears poised to have its best year since 2006.
That’s good news for social ventures, for whom early-stage capital remains tough to obtain, despite the new conventional wisdom around impact investing that there’s somehow “too much money” chasing too few investable deals.
It’s also testament to the enduring need for the kind of intensive, high-touch, relationship-based dealflow and due diligence that has been the hallmark of Investors’ Circle. For its 20th anniversary investors’ conference later this month, Investors’ Circle vetted 225 applicants, sent 60 ventures for review by its committee of seasoned investors and invited 12 to make their pitches from the stage. Another 25 will meet investors one-on-one in the conference showcase.
“Early-stage investing — it's still a contact sport. You need to see the people and kick the tires,” says Kenneth Merritt, a Vermont lawyer and angel investor who serves on Investors’ Circle board. “It's not something you can see on the Internet, click the button, and write a check for $25,000 or $50,000.”
So far this year, Investors’ Circle members have invested $4.73 million in 17 deals. With the fall venture fair still to come, “We are optimistic that IC will invest close to $10 million this year,” says Justin Desrosiers, IC’s director of strategy and operations. In its two decades, Investors’ Circle claims to have facilitated investments of $152 million in 255 enterprises and funds that have attracted $4 billion in follow-on financing to tackle challenges in the environment, education, health, and community development. Notable ventures backed by IC members include Zipcar, Niman Ranch and groSolar.
Investors’ Circle’s dealflow in the first half of 2012 was enough to make it one of the most active angel networks in the country – impact or not – according to the Halo Report, a regular update published by Silicon Valley Bank and the Angel Resource Institute. That put it alongside dedicated tech and healthcare-related angel groups such as Sand Hill Angels in Silicon Valley, and Launchpad Venture Group in Boston, though those groups still put more money to work.
The improving economy, or at least the promise of same, is a major factor in IC’s resurgence. The network invested a record $13 million in 2005, but activity dropped off the cliff in 2008 as the financial crisis hit hard. Sponsorship dollars dried up as well, which forced cuts in spending for member development, events and other services, which depressed investing activity further.
The downward spiral led Investors’ Circle to broker a rare nonprofit merger last year with the SJF Institute, the nonprofit affiliate of SJF Ventures, the Durham, N.C. investors in sustainability and tech-enhanced services to create positive community and environmental benefits.
“Since SJF institute took over Investors’ Circle, they have added some stability and added a sensibility that's it's OK to think about new ways to attract new investors,” says Jim Davidson, a Denver angel investor who was a senior executive at AOL. Investors’ Circle, like other angel networks, previously had something of a “country club” feel that may have matched some angels’ taste but didn’t serve the cause of attracting additional impact investors, he says. “SFJ Institute knows they have a brand name and knows how to leverage that to get more capital to work.”
Benjamin Bingham, founder of 3 Sisters Sustainable Management LLC in Philadelphia, is even more blunt. Back in the 1990s, he says, he had serious questions about IC’s process for screening ventures. “It seemed to depend on too much cronyism and too little conceptualization about what mattered in each category,” Bingham wrote in an email. “That seems to have improved by leaps and bounds and yet I still think there is room to improve the dialogue around what matters.”
Members credit Bonny Moellenbrock, the head of SJF Institute, who now runs Investors’ Circle as well, with improving IC’s ability to follow-up on investor interest and help get deals done.
“Angel investing, from the entrepreneurs’ standpoint, is a classic herding cats exercise,” says Tom Balderston, a Philadelphia-area angel investor, who with fellow investor Sky Lance has helped accelerate IC's deal-making through an affiliated series of funds called the Patient Capital Collaborative. Since 2007, the Patient Capital Collaborative has made 14 investments in opportunities identified through Investors’ Circle.
“This is a pool of committed capital in a fund structure , so entrepreneurs coming to the IC conference know there is at least one investor committed to making an investment out of the group that day,” Balderston says. “ That is different from how the typical angel works — where each individual decides whether or not they want to invest.”
The revival of Investors’ Circle may help lay a foundation for an even broader expansion of impact angel investing. To be a successful angel requires diversification, Davidson says. With each deal taking so much time and effort, it's difficult to build the requisite portfolio of five to 10 investments. As a result, he say, only about 10% of accredited investors participate in early-stage, direct investments. Of those, almost half never make a second investment.
Davidson says improving the satisfaction and lowering the costs for angel investors with better deal flow, improved deal structures and increased transparency could expand the pool of available capital. “The goal is to figure out how to get the other 90 percent of accredited investors into the game!”
Ken Merritt says Investors’ Circle has an opportunity to become a bridge to social and environmental impact investing for the 200 other angel investing networks around the country, building on IC’s overlapping membership to syndicate attractive deals to a broader pool of investors.
“How does IC interact, syndicate and collaborate with the other angel groups?” he asks. “How do you make the ecosystem more interconnected?”