The Search: Finding Your Angel Collaboration Platform

The Angel Capital Association, in concert with Jeffrey Lang of the Desert Angels and ACA’s proud partner Dealum, has published this informative interview on one of 2023’s most important topics in the angel investment space: angel group collaboration. Angel groups are the bedrock of the angel investment space, and whether within your own group or with outside groups, better connections lead to more successful angel groups. As the head of one of the country’s leading angel groups, Jeffrey Lang is a leading angel investor and a trailblazer in the angel group connectivity space.

On the importance of this interview, Seren Rumjancevs, CEO of Dealum, comments, “The insights shared in this article are incredibly valuable not only for angel groups, but for the entire investment ecosystem. Connectivity and collaboration have huge potential to change the way early-stage capital operates. Dealum is proud to host Desert Angels on our platform and are grateful for their continuous feedback to improve the platform ecosystem."

In this rare interview, listen to Jeff’s investment story, his call for greater angel investor collaboration and his complete process for reviewing and ultimately selecting a platform for angel collaboration. Whether you’re an investor looking to better connect with fellow angels or an angel group operator looking for a blueprint to navigating the platform selection process, this is one interview you cannot afford to miss.

Damien: [00:00:04] Welcome, everybody, and thank you so much for your time today. My name is Damien Delgado and I'm the ACA Partnership's Director. I'm joined here today by Mr. Jeffrey Lang, chairman of the board for the Desert Angels. Jeffrey, how are you doing today?

Jeffrey: [00:00:18] I'm doing just fine, Damien. Thank you for having me with you.

Damien: [00:00:22] Of course, and thank you so much for coming and joining us today. A great place to be able to start today is maybe tell our listeners a little bit more about yourself; a little bit more about your personal journey that led you to becoming chairman of the board, and of course, why you decided to become an angel investor.

Jeffrey: [00:00:40] The summary of my background is, I started my professional career as a design engineer at Texas Instruments. While it led me to four patents, I got a total of $4 for those patents. While at Texas Instruments, I met a salesman who later became my partner in the acquisition of my first entrepreneurship business, which he and I grew together from a quarter of $1,000,000 to more than $40 Million over the course of the next 14 years and ultimately sold. Along the way, he and I also built two other startups concurrent with the big one. So over time, I've been a serial entrepreneur for startups for successful exits. In 2008, I joined Desert Angels as a member. And December of 2019, I became a board member and later became the chairman of the board. While I was traveling in France, a board meeting was conducted, where the current board member indicated that he was about to retire. I said, "well, I'd be interested in throwing my hat in the ring," and everybody immediately voted me Chairman, which is often the case with angel groups. They're volunteer organizations, and if you express an interest, you're going to get the position. So it's something I enjoy very much. I've been invested in more than 30 startups and had two successful exits from those startups. So, it's a journey I like to be on.

Damien: [00:02:23] Wow, Jeffrey, congratulations on your immense success in this space. Maybe along those lines, you can tell me a little bit more about some of the learning curves along the way. What are some of the biggest lessons you've learned in your angel investing journey?

Jeffrey: [00:02:36] Part of my interest in being an angel investor is having the opportunity to put something back. I've enjoyed some success and I've learned a lot along the journey by myself and with my partners. The opportunity to put something back for startups, particularly those startups that you recognize as bringing something to market that has real value, is the opportunity to be a mentor to them. And what you have to learn as an investor is how to determine when the management team at a startup is willing to be mentored; we call it coach ability. When we discover a founder who has something that's of real value, and they turn out to be willing to listen to the advice from mentors, that's a deal you want to invest in. The learning curve was how to determine when they were ready to listen and then be prepared to stand in and provide that advice.

Damien: [00:03:45] That's fantastic Jeffery, and I really appreciate that, as I know our viewers do as well. 2022, of course, as you know, was a very complicated year for the investment space and we have what appears to be a pretty challenging 2023 ahead. Talk to me about 2022 and your view on the angel investment space and then, if possible, turn the page over and let us know what your thoughts are as we head into 2023.

Jeffrey: [00:04:14] I'm going to deliver this from the perspective of both Desert Angels and from my own personal viewpoint. I think we experienced some changes in several elements during the 2022 period as it relates to angel investment. They include close to a 30% increase in the volume of startup and early stage requests for funding applications, in which I review every application that Desert Angels receives. This obviously increases the work commitment required by Desert Angels management team, about 70% of which is entirely volunteer. Unfortunately, with that increase in volume and perhaps as should have been expected, the increase in volume did not involve any improvement in average deal quality or value. When we received more than 1100 applications each 12 months, it is only around 8% of these which carry sufficient substance to qualify for consideration for investment. 2022 was no different than that, except the volume was heavier. The ask or amount of funding requested has decreased slightly in 2022 when compared to the median ask that we experienced in 2020 and 2021. And that's significant because during the 2020-2021 period, many startups sought more funding on greater valuation than they really deserve for that state in time. That made investors shy to invest. That ask has actually come down significantly as 2022 has progressed forward. It's come back into tune with what's reasonable, based on the state that the individual companies have to present for angel investments. Most significantly, as 2022 is progressed, we've seen valuations become more reasonable with the funding requests that we receive. Whether they're expressed in terms of pre or post money valuation, the founders seem to have gotten the message that they really need to present substance when they claim value. That's made it much easier to consider the applications that we receive. We also have noted, as 2022 is progressed, that the content, the richness of the applications, has become much more complete. I'm not sure where the founders are getting their notes from, but they certainly have been more perhaps verbose, but also more accurate in the content of their applications, and that's encouraging. It bodes well for angel organizations such as Desert Angels because it allows us to see deals that have the opportunity for high economic impact, content, and quality, which allows for funding to proceed easily.

Damien: [00:07:15] Perfect. Along those lines then, as we proceed deeper into 2023, how do you expect some of the economic challenges [that the US and the world economy might face, if at all] to impact the angel investing space in 2023?

Jeffrey: [00:07:32] I'm going to answer that two ways. One, is the threat of inflation has both influenced valuations, and it's also focused attention on the quality of the deals. One of the things that we're very aware of at Desert Angels, and we study this every other year, is that we actually do an evaluation of the economic impact of our investments within the Southwest region of the United States (where we do about 80% of our investment.) The 65 companies that Desert Angels invested in between 2010 and 2020 represented a total economic impact of more than $647 million. That means that we had close to a $10 million economic impact for every dollar that a Desert Angels investor invested in startups. That's a tremendous impact for angel investment. The study also indicated that that investment created more than 3600 new jobs in the region that these businesses operated in, receiving more than 200, almost $240 million worth of annual labor income, which of course leads to tax dollars for the states in which those businesses operate. So for each $100,000 investment, the findings confirmed that the Arizona economy in particular, received on average 5.8 direct jobs, $457,000 worth of direct wages paid, and $2.1 million in annual economic impact. That's a pretty good return on investment; 21 to 1. As we move forward at the close of 2022, this is not only continuing to have high economic impact results, but realistically, given the observed improvement in the quality of better form deals that have been arriving on Desert Angels doorstep, these values are likely to accelerate and improve.

Damien: [00:09:42] Wow. That's incredibly encouraging. That's incredibly exciting for the angel investment space as we're going into 2023. And it sounds like there's no better time for angel groups to be able to come together to take a look at their assets and their internal processes and to move forward in terms of being able to invest and meaningfully participate in investments in 2023. So that's incredibly exciting, Jeffrey. On that note of looking at some of these internal processes, as you know of course, Proseeder's closing created a lot of confusion and there are a lot of angel groups out there right now that are still working on updating these internal tools and processes as a result of that. Tell me, what factors should angel groups be considering when deciding on their next angel group platform?

Jeffrey: [00:10:30] There are a number of core functional requirements that deserve consideration when any of these groups are considering a new deal flow management platform. The evolution of the major platforms which support Angel Deal Management has caused many angel groups, which over the past decade have come to rely on a platform which has withdrawn from the market, to now have to need to seriously evaluate and compare the newer platforms to find the one that best matches or enables them to actually evolve their processes in order to take advantage of the deals that are presented in the marketplace today. The tools that are available today actually offer better management processes, but one of the problems with human beings is we avoid or we are influenced by the momentum of doing it the way we've always done it. One of the challenges of moving to a new platform is to look at it, to not only enable you to reproduce what you need to do within your deal flow management process, but to find ways to improve your deal flow management process. For many of the angel group managers with whom I've spoken over the past year, and certainly since the announcement in May that Proseeder was leaving the market, is that they have seen their need to update their list of requirements to include not only the features that they like in their existing platform or process, but also the list of features that their members have been asking to see and that they believe would make sense in optimizing their own process.

Jeffrey: [00:12:10] Such examples of those features and functions are the ability to customize a deal application process; the ability to stage and manage the application and deal flow processes as they move from stage to stage, where automation is now possible in the platforms that are offered. The majority of angel groups are predominantly managed by a very thin group of members who are compensated group employees serving in roles ranging from CEO or group manager to positions such as screening chair, due diligence chair, or lead, etc. These people need to have better information at their fingertips and at the stages of the process that the angel groups define. Several of the platforms offer those capabilities, and those are things to seriously be considered by angel groups. The ability to manage and keep all communication between the angel group and their funding deal applicants contained within the platform itself, gives the group members a single point of reference for all deal details. That was not possible in the platforms that have existed in the past. It is possible in several of the platforms that exist today, and that's critical because it gives members one place to look when they want to examine the quality of deals.

Jeffrey: [00:13:35] The opportunity or ability to configure and obtain input from members in terms of voting on the progress of a deal through a deal flow management process didn't exist previously, but again, it exists in platforms today. Where it didn't exist, means that angel groups will need to evolve their processes to take advantage of this new functionality. Another example of a feature or function that's of great value and exists in the platforms that are now available is the opportunity to actually host internal documents directly related to either a specific deal or to the deal flow platform itself. That feature has surfaced in several of the opportune platforms that are available for consideration today. And the final one that our members have certainly found to be of great value, is the opportunity to have a truly organized deal platform library of documents that are trainings, educational or informational, for the benefit of members. At least two of the platforms today offer the ability to allow members to actually simply enter keywords and search the entire document library to find the ones that are best matched to their inquiry.

Damien: [00:14:55] Is there a particular feature in these collaboration platforms that you and your team, when you were going through your own due diligence process, really favored and really look for as a differentiator when picking a new platform?

Jeffrey: [00:15:09] A Combination. The ability to customize the deal application itself, and perhaps even more importantly, the opportunity to take that application and surface questions as deals move from one stage to the next. So in other words, by being able to do that, when a founder comes to the platform, they fill out an application that contains only the questions and requires the answers to allow the deal to be what I call triage. Does this have opportunity for investment? And when it gets passed forward to the next stage, surface the next set of questions to determine whether or not the deal should flow to the subsequent stage. That's possible in at least two of the platforms that are available today.

Damien: [00:16:01] I know that all this has additional weight because just a few years ago, you went through this due diligence process yourself in terms of looking at new platforms. Can you talk to me a little bit more about what that due diligence process look like a few years ago and how you arrived to a final platform from there?

Jeffrey: [00:16:22] Yes. Close to the end of 2019, Desert Angels had become a bit frustrated with the platform that we were using. As a result of that, I assembled a Committee of Desert Angels members to examine our process, define the things that were missing, or the things that we would like to see available in our deal flow management process. We then went out and looked at the three platforms that we had identified and wanted to compare to see which one would allow us to evolve the process. We were, at that time and had been for better than ten years, hosting our deal flow process on Proseeder. At that time we also had immediate access to Gust, and because of an introduction that had been made, we sampled or did a trial with a product at that time was known as Startup includer. It's now known as Dealum. And what we did with those three platforms is that we actually walked the three of them through a managed deal flow process, documenting our successes, failures, and frustrations at each step in the process, assembling independently.

Jeffrey: [00:17:35] Six individuals on the team did this independently, and then we compared our notes and we researched those available platforms to determine which one would give us the best results. We were one of the first angel groups to have adopted and made extensive use of Proseeder. So, we were very knowledgeable of its capabilities and had exercised every single one of them. We also had access to Gust and were able to imitate very quickly the processes there. With Dealum it was completely new to us; completely new interface, and they gave us immediate access to an extended trial, which actually ran for four and a half months. We used the three platforms side by side and ran that series of comparative tests by six separate functional members of Desert Angels. With that detailed list of functional feedback or comparisons, we were then able to compare and contrast. The result was, that we assigned scores to each of those steps and functions in terms of their necessity and ultimately picked our winner.

Damien: [00:18:56] And Jeffrey, if you don't mind my asking, what was your winner at the end of this process and why.

Jeffrey: [00:19:03] The winner turned out to be Dealum because it enabled us to do all of the features and functions that we had defined as being necessary or desirable, with the exception of one. And I have to throw out a note here that says we highlighted that one to Dealum when we selected it, and within 40 days Dealum had added that functionality.

Damien: [00:19:36] That's incredibly reactive and I appreciate that, Jeffrey. Not every process is perfect and I'm sure you've looked back at that process and there may have been one or a few things you wish you could have done different, or you would have improved on. What are some of those pieces that you wish you would have known on the front end that would have made the process smoother?

Jeffrey: [00:19:57] One of them would have been, what direction do members choose to look at deals? What do they look at first? While the core group [that was the committee to do the comparison and ultimately the selection] was very familiar with the processes from end to end and thought that way, we discovered after changing platforms that all members don't start at the same point when considering a deal. So that caused us to have to go back and look at what was available in the platform that we had adopted, to say, how do we surface this in such a way that we reveal entry points from the perspective of all of our members. It turns out that there's about four entry points, and we were able to do that by taking advantage of Dealum's dashboard functionality.

Damien: [00:20:54] I think those kind of insights will be incredibly helpful for the angel groups out there who will be either assessing for the first time or reassessing what that angel collaboration platform looks like. And along the lines in particular of angel groups out there who aren't using collaboration platforms currently. Can you talk to us a little bit more about why they should reconsider that? What made you yourself decide to make that leap from not having that kind of platform to say this is going to be an integral part of the work we conduct?

Jeffrey: [00:21:26] I'm actually hearing two questions there. One is related to angel groups that don't use a platform today, and the other is angel groups that use a platform, but realize that they need to evolve their use or change platforms. So, let's talk about the first one, and that is the angel groups that don't actually use a platform today. The issues that I see for those groups, and this is where Desert Angels was 12 years ago, is that their members don't have just one place to go to look for information regarding the deals that are presented to their group. Even if they were to adopt a platform that minimized the amount of information they got, perhaps only had the opportunity to collect the application, have one place to click, have the ability to upload documents related to that deal, that would be of great value to their members because it's the spirit of one version of the truth. Rather than having documents spread about as attachments to emails, they appear with the deal in one place for members to go find them. Beyond that, the functional improvements that they can make to their deal flow process are enabled by the platforms themselves, and I think we've talked about those features and functional elements previously today. When it comes to the consideration of existing angel groups that make use of a platform, the primary driver there is still to provide one version of the truth to their members, but to make that truth be more complete; allow it to contain discussions related to the deals, and comments received by members that are not viewable by the founder, but are viewable by the members. In other words, a conversation about the deal where there's actually, if you will, an audit trail of that conversation so that any time you go back and look at the deal, members are able to see, "..well, how did we get to this point? Ah, I see the points were raised here. Questions were asked. The founder responded this way and that's natural progression. And yes, I should continue considering this deal or no, that's enough information. I know enough that I don't want to invest in this deal." Having that one version of the truth is a critical element of having a well managed platform.

Damien: [00:23:52] Is that what helped you arrive to that point when you first were embarked on this journey?, in terms of, okay, we are not utilizing a collaboration platform currently and then saying, all right, we need to at least embark on this process towards understanding whether we should be utilizing one of these platforms.

Jeffrey: [00:24:11] I think the driver for me was that we needed to have deeper knowledge of each deal. So to do that, we needed new functionality. That was a critical element of examining the platforms that we looked at to consider for the possible migration. And add being able to satisfy those defined requirements, was critical to making the ultimate selection.

Damien: [00:24:41] Jeffrey, if there's one big idea for any of the listeners out there who are tuning in, wanting to hear about this entire process for you and the Desert Angels, what's that one big idea you want our listeners to take away from this?

Jeffrey: [00:24:58] I think the imperative is to have the ability to clearly define deal flow process. I think for every angel group, every angel manager that I've ever spoken to, deal flow process is always based on stepping the application through stages. Stages where they're evaluated, where additional questions are asked and input is received. Having the opportunity to do that in a more labor efficient manner, since many angel or most angel groups are volunteer organizations, time is precious and having the opportunity to stage deals in a manner that allows the most important questions to be asked first so that you have the ability to triage the application and say, "yes or no... I should consider this further," is critical to the process. It allows you to do as Desert Angels does; examine more than 100 applications a year and ultimately be able to get to the 80 to 100 that actually deserve real consideration. And then to have the ability to further manage that staged process so that it works to the advantage and informational advantage of your members [by collecting more information as it moves forward], is an absolutely invaluable opportunity by using a well managed platform.

Damien: [00:26:27] As we head into 2023, give me one reason for angel groups to be optimistic heading into the new year, and then one challenge heading into the new year for angel groups that they should be wary of.

Jeffrey: [00:26:39] I think I'm going to try to answer this question from a slightly different perspective. Touching on each of the points that you just made, I see that the opportunity for a very real recession has the potential to reduce the introduction of new entrepreneurial efforts, which will reduce the enthusiasm of angel investors to make investments in any deals other than those that are very qualified and have a higher perceived value of request. However, and this is most important to consider and realize, the realities of our economic and financial marketplace appear to be causing many entrepreneurs to recognize the need to get their house in order and better prepare their pitches in line with a more realistic financial projection and accompanying their offer terms measured by both the size of their funding request and their proposed valuations. This causes investors to give them deeper consideration. A corollary to this is that the deals that will be offered are more likely to be better prepared overall, and this has the potential to lead to better value more attractive deals for greater angel investment.

Damien: [00:27:49] Jeffrey, you've given our audience an incredible wealth of knowledge to be able to pull from today. Do you have any final thoughts, any final messages for our viewers?

Jeffrey: [00:28:00] I think that angel groups like Desert Angels, have gained a lot of knowledge concerning the adoption of best practices over the past few years. Some of this was forced by COVID; our ability to act interactively, virtually, if you will has extended our reach. Perhaps this can at least be attributed to the pandemic, which caused all of us to recognize and master this use of virtual meetings. The increased and continuing use of virtual meetings, albeit now in most cases in a hybrid mode, have offered most angel groups the opportunity to accept members and deal applications from a much wider demographic or geographic profile. Deal sizes also continue to increase from where less than five years ago, the average deal size was well under $1,000,000. Today, it's fast approaching more than $5 Million. The combination of geographically more broadly distributed membership and point of origin for deals together with an elevated size of offerings almost immediately demands that angel groups find the best ways to affect the sharing or syndication of deals. Each of the 21st century deal flow management platforms, which we've touched on today, either already have in place or are now demonstrating their work to put a standardized model for syndication in place. Desert Angels does this today in support of syndication among a growing list of angel groups who have migrated to the deal and platform as Desert Angels has. Dealum and other platforms should continue their work with the ACA to collect input as to the best and most accepted approach and requirements for effective and high velocity syndication so that deals get the funding that they deserve.

Damien: [00:29:56] Jeffrey, I want to thank you so much for your time and helping to educate our viewers. And of course, I want to thank our viewers today for listening in. I think there's an incredible number of insights they can glean from this process and from your insights in terms of as we look towards these angel management platform processes in 2023 and beyond. Thank you so much again.

Jeffrey: [00:30:19] Thank you very much and thank you for giving me the opportunity to contribute.