John May John May is the Chairman Emeritus of the Angel Capital Association, the official umbrella organization of the leading angel investment groups in the United States. He is a major figure in the global angel sector, having written two seminal books on angel investing, one for entrepreneurs on fundraising, and another for angels on best practices in investing. John serves as the primary East Coast trainer for the ACA’s Power of Angel Investing seminars, and through his management firm New Vantage Group runs several of the most respected and active angel organizations in the country (which, of course, all use Angelsoft to manage their deal flow and investment collaboration.) What follows is a clarion call to serious angel investors that John issued this week in light of the capital market gyrations.

“Calls have been flooding into me from the press, our investors, and our portfolio entrepreneurs about how to react to the darkening economic environment. Early-stage investors in entrepreneurial companies have always represented themselves as patient investors and supportive partners, not financial engineers. In fact, we angel investors have frequently thought of ourselves as “mentor capitalists.”

So it occurred to me that in this time of political uncertainty, lack of clear direction from economists, and once-in-a-lifetime hurdles, we must stand up and either be true classic angel investors or we should go home. I seriously think that we will look back on this era as one when we stood by our companies and separated ourselves from the quick buck, irresponsible masters of the derivative empire or when we ran and confirmed to the popular press that we were hobbyists and not very angelic at all.

Those of us who believe that serious angels – located in all cities, all states – formed the Angel Capital Association and educated themselves at Power of Angel Investing seminars and told foreign guests that we were part of a movement, must now stand up and support American entrepreneurship like never before.

How can we demonstrate our true colors? Here are just a few action items that come to mind – a short list I hope you will expand and communicate to others in our venturing community.

First, be honest, realistic and communicate. Like never before we need to bring our wisdom and experience to bear and tell it like it is to struggling entrepreneurs. We have a principal-to-principal relationship like no other asset class and we must communicate like never before.

Second, demand stark reality in planning and operations and assume the worst of the coming recession. Do not take half steps. Do not rely on past assumptions of pipeline, financial institution support, and prior partners. Re-confirm relationships.

Third, remember cash is king. Husband current resources, talk to co-investors about capacity to continue support, demand review of current operating assumptions.

Fourth, expand on dialog collaboration with like-minded investors who could partner in supporting current companies in the coming months – syndicating has already become common among angel groups – it may be vital in order to stretch resources. In a time of lack of trust among financial institutions, we need to work alongside fellow sophisticated angels by co-investing in existing portfolio companies.

Fifth, task angels to seek alternatives to growth and to find exits that were ignored, discounted, or unknown before who could buy the company, who could provide support in the short term, and what would happen in a worst case scenario.

Last, angels need to be honest with themselves and not ignore the reality of limited resources available to do new deals even while “protecting our own children.” I suspect in the coming six to twelve months many alluring new opportunities will have to be reviewed in light of the blight of our existing children, and if we meant what we said about being different than hit-and-run financial engineers, we should honestly address current company survival plans before leaping to the next best thing. We may be able to do both – but inward reflection and some “reality therapy” must come first before executing a revised 12-month plan.

We don’t know how bad the upcoming recession and credit crisis will be, but we, of all investors, should use our experience and long-term perspective to help our early-stage innovative company community through these uncharted waters. Let’s stand up together.”

John May
Managing Partner, New Vantage Group, Vienna VA
Chair Emeritus, Angel Capital Association

David S. Rose :: Oct.14.2008
Angel Group Manager, Angel Investor, Entrepreneur, International, Investor Community, Investors, Tips