How can angels ensure quality deal flow in the torrent of new business opportunities? According to Philip – an experienced, successful entrepreneur and investor – the answer lies in accelerators.
Many excellent accelerator programs have emerged over the last decade. These accelerators nurture entrepreneurs and ideas into the next unicorns. Importantly, the accelerator-to-angel relationship is not mutually dependent. Angels do not need accelerators to carry out their investments; it helps us assess quality deals, but it is not a vital component of the investing process. However, for accelerators, their future depends on whether their alumni companies are successful in raising funds – normally from angels, not VCs.
When a really hot prospect arrives with multiple funding offers, your existing relationship will increase the chance that your investment is chosen over that of a newcomer.
This imbalance has led many accelerators to put a premium on developing relationships with angels and early stage investors in order to secure investment for their portfolio companies, when required.So how can we, as angels, harness this imbalance in order to attain quality deal flow from accelerators?
Rule 1: Be accelerator agnostic
As an angel, there is no need for you to limit yourself to one accelerator. Scan companies from many different programs, collect one page executive summaries and have a view of the entire ecosystem of fund raising companies.
Rule 2: Build Relationships
A vital part of ensuring quality deal flow is relationship building. Accelerator meetings, which are traditionally before a demo day, provide the chance for angels to foster a relationship with companies before funding is required. This allows you, the angel, to assess the quality of the team ahead of time, and provides a head start when deciding which businesses to invest in. When a really hot prospect arrives with multiple funding offers, your existing relationship will increase the chance that your investment is chosen over that of a newcomer.
Rule 3: Always attend Demo Days
The power of a demo day cannot be underestimated. Firstly, there may be no other opportunity to experience such a wide variety of exciting companies in such a short space of time. It also allows you to hear the CEO’s pitch and to develop an understanding of the company’s culture and ethics – far beyond anything that could be gleaned from the executive summary alone. It is also important to remember the services provided by accelerators following a demo day, which may include an offer to conduct due diligence and partially negotiate deals on your behalf.
Rule 4: Become a mentor
As Philip Wilkinson told Angel Insights, ‘there are so many companies coming out of Entrepreneur First that I would invest in because they have fantastic people with great ideas’. Access to this quality deal flow is available to Philip because he has given up his time to become a mentor for the accelerator programme. Of course, angels have been known to negotiate for equity in return for their time as a mentor.
In summary, the key to harnessing the true power of accelerators lies in one simple word: Immersion. Immerse yourself in the process, never turn down a demo day, and always attend additional events and meetups. These relationships will provide the fuel to develop to a strong and diverse accelerator-focused portfolio.