As a part of of ACA’s Data Insights Initiative, we share useful learnings from analyzing data on angel investing and portfolio returns.

Member Engagement Increases Throughput and

Expertise Applied in Due Diligence

In the July 2022 edition of ACA Data Insights, the Queen City Angels (QCA) offered “Measuring Member Engagement as Driver of Angel Group Success” summarizing a comprehensive study of six years of data related to member engagement. This is the first sequel to that Insight. QCA defined “engagement” as a member’s commitment to QCA’s success as demonstrated by their intellectual contributions and participation in activities key to the organization’s mission.

The key activities that provided the input data for this study included individual member attendance at regular investor meetings; serving on deal screening or due diligence teams; post investment governance activities; and/or, serving on standing QCA committees.

The high-level data analysis revealed:

Angel investor groups, like other volunteer organizations, are enabled by the level of individual member engagement. Intuitively, one might assume that the level of member engagement in combination with members’ experience and expertise would be directly related to an angel group improving its investment outcomes. To help assess if this is indeed the case and the degree of improved outcomes, some questions come to mind such as the following:

Given the findings reported in the July 2022 ACA Data Insights, QCA members’ engagement was higher than expected and indicates a broader distribution of the required workload among QCA members. The tracking shows more members are gaining valuable experience and developing the needed expertise to better evaluate companies coming through the pipeline, thus leading to better investment decisions. Now that QCA has a better understanding of the data as to member engagement, has that level of engagement driven better results? How do we measure and evaluate those results? How are the results related to engagement?

To answer these questions, we had to dig ‘‘deeper” into the data especially as it relates to screening committees, due diligence activities and the portfolio companies that received investments from QCA within the six-year (2016-2021) study period.

The initial data analysis (shown in the graph below) illustrates the QCA “deal pipeline” for the study period, i.e., those companies who applied for funding from QCA and progressed toward an investment. More specifically, we considered a year-by-year comparison of the number of companies that:

In addition to distributing the required workload effectively, greater member engagement has also resulted in increased “speed” of execution as it relates to working companies through the pipeline. As a result, during the study period QCA has become far more efficient relative to our processes and decisions to invest.

A second graph (below) indicates the number of companies at all stages of the pipeline has remained constant or increased over the study period. Thus, the increased speed of execution has not come at the expense of having fewer companies in the pipeline. Clearly, the increased member engagement has had a very positive effect on QCA’s ability to consider more companies for investment and to do it faster.

Key Takeaway:

Increased member engagement (coupled with extensive training) has had a direct positive effect on the number of companies being considered for investment and the speed in which those decisions are made. That efficiency has shortened decision time and freed up resources to screen more deals.

Has the increased level of engagement resulted in better results/outcomes in terms of amount invested per member and ultimately the success of the investments? In the third and final article of this series, the data will be analyzed to explore that question.

Author:

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