Impact Investing Angel Networks: The Clearly Social Angels Recipe for Success
Recipe for an Impact Investing Angel Network
Recently, Suzanne Biegel – the founding angel in our Clearly Social Angels (CSA) group – was on BBC Radio 4’s The Bottom Line, talking through her experience as an angel backing social and environmental impact. A few days later, CSA investee Aduna won an award at the prestigious UK Business Angels annual awards dinner – and UKBAA announced earlier this year that 1 in 4 angels say they have already made impact investments.
As our network of investors grows (we now work with over 500 individuals who want to invest their personal capital for social and environmental change as well as financial return), people often ask us who these individuals are, the ones pioneering the impact investment movement by backing growing ventures with impact at their core.
Our CSA network is a smaller group of around 35 individuals. These are particularly unique in that they are willing to commit time to meet entrepreneurs (and each other) at our monthly pitch events, take on the lead investor role in a deal and often join the boards of these ventures to further support them as they grow.
Last year, with the Big Lottery Fund, we conducted research into best practice in starting an impact-focused angel group. So what goes into an impact investing network to make it successful – what are the ingredients for success?
Well, our top three suggested ingredients for a successful impact investing angel group are:
1. The people: find the right mix, including those who can support entrepreneurs as well as invest in them
2. The deal flow: the right deals will make or break a group in its infancy
3. Values-alignment: not every investor will suit each investee; knowing what a good match looks like is vital
The first angel
The first angel matters immensely. Impact investing is still very new – Clearly Social Angels is the first group of its kind in the UK – and so those who are in the vanguard will need to be committed to the cause. We were lucky enough to be able to work with Suzanne Biegel, whose experience leading Investors’ Circle in the US was invaluable. It meant early on, before we had the portfolio of our angels’ investments that we have now, we had someone on whose personal experience we could draw.
Suzanne’s tips and advice – from how to become an angel investor to how to measure the impact of investments – have supported new angels as well as seasoned investors to make their first impact investments. Meanwhile, her willingness to be open with her peers about her portfolio, her successes and her disappointments, has enabled us to understand how angels are approaching risk, returns and impact in their portfolios – as well as their motivations for getting involved (turns out, it’s about a lot more than simply equity stakes).
Another key ingredient in an impact investing network is the entrepreneurs – and not the ones who are pitching. Having cashed-out entrepreneurs in the group, or those who are still running their super successful businesses, is absolutely integral. The best businesses can be choosy about their investors, and the value entrepreneurs (current or past) can bring with their investment is huge.
Entrepreneur-investors might come from the same industry, and be able to open doors to contracts or customers, or be able to provide expertise and advice on growing a business, and – later – selling a business. They also come with a passion for startups and a drive to make their investments successful that is vital in pushing for success – when 50% of small businesses fail within the first two years.
Unlike many angel networks, it is particularly important for those focused on impact to include philanthropists among their number. These might also be seasoned angel investors too, but their experiences of philanthropy will enable them to challenge outcomes and support businesses to scale their impact.
Many philanthropists will have a specialism – education, or gender equality, or global health – that has given them deep understanding of social or environmental challenges. This will make them more useful to the entrepreneurs that they back, but it also helps other investors in the group to think about impact in terms of depth, breadth and scalability.
Those with careers in finance, law or similar professions, who join an angel group while they are still in the City – or after they have left it – also bring significant experience to the table. They are often more comfortable with more complex financial structures than straight up equity or debt, and can support their fellows by becoming lead investors in deals.
All of these different kinds of investor bring valuable skills with them to the group – and there are others too, of course. The key is to have a diverse group of angels who can offer entrepreneurs much more than a few hundred thousand pounds in capital but can genuinely help the business to grow.
The deal flow
Building our angel network has meant being really clear about the kind of deals that our angels want to see – but also sometimes bringing them more unusual, innovative deal structures or businesses. Some of the more exciting businesses our angels have backed may not have been on their top target list in terms of sectors, or even sometimes the investors’ professed key social impacts, but they have been credible, scalable opportunities, and sparked interest for that particular group of investors.
Getting the deal flow right early on is crucial – our angel group’s portfolio is very diverse, but it has always been clear to us that traction matters, and picking the right entrepreneurs early on can make or break an angel network. We hear from over a thousand entrepreneurs every year but take only 25-30 through to pitch to our angels. And before we take them through, they will go through a screening committee, meetings with our Ventures team and a pitch preparation session with a generous volunteer investor. We have had to refuse some really exciting, successful businesses because they don’t meet our social / environmental impact criteria – and some hugely innovative enterprises tackling social challenge because they cannot give us evidence of real commercial potential.
This rigorous process takes a lot of time, and sometimes it means disappointing entrepreneurs halfway through – but it means we can bring deals to the group that we know tick many of the right boxes for the angels, and it means our angel pitch evenings are always constructive for the entrepreneurs in terms of contacts or networks even if they do not end up raising capital.
We believe strongly that, at this early stage especially, values-alignment is integral to success. Investor values absolutely must complement those of the entrepreneur. Our angel group is made up of investors who want to see social and environmental change happen, and therefore the entrepreneurs
We encourage the entrepreneurs that pitch successfully to our angel network to see the due diligence process as a two-way process; they need to say yes to the right money, and the right investor, and say no to the wrong ones (see our guide for entrepreneurs on questions they should be asking). The process may sometimes seem long-winded but it means investors are matched with the right entrepreneurs – and we love seeing our angels truly get behind the businesses that they have backed.
An impact investor group is like any other angel group in many ways – diversity matters, sharing learning and education matter, and the right deals for the right kinds of investors matter. But in an impact-focused group especially, everyone is there because they are looking for more than just financial return – just like our Clearly Social Angels, with their blend of philanthropists, professional investors and entrepreneurs, and who are real pioneers in impact investing.