« Monday Morning Angel: Shark Tank Episode 2 | Main | How to Pitch an Angel (or VC) »

The 'Myth' of the Active Investor?!

Recently, Scott Shane, a very smart and decent guy who is a professor of Entrepreneurial Studies at Case Western Reserve, has been highly visible around the web blogging and commentating in support of his recently published book, Fool’s Gold: The Truth Behind Angel Investing in America.

His main thesis is that ‘people’ have a very misleading view of that rare creature known as an “angel investor”, and that angels are far less numerous, generous, and active than ‘everyone’ thinks. In support of this he has extensively research the subject, pulling together all of the available statistics on the field, from the Angel Capital Association, the Center for Venture Research, and even us at Angelsoft (which we’ve been happy to provide.)

As I read his book, and many of his subsequent blog postings and commentaries, I am alternately baffled, bothered and bewildered by his conclusions. First, let me say that his research is legitimate and (as far as anyone, including me, can tell) accurate. So I am not disputing his facts. What I object to, however, is that he sets up straw men to demolish, in order to make lurid points that I believe lead his readers to draw inaccurate conclusions on the state of angel investing.

Take, for example, his contention that angels in America invested “only” as much money last year as venture capital firms. Is the fact of “angel investments = vc investments” accurate? Yes (to the best of our knowledge.) But phrasing it as “only as much” somehow implies that someone is maintaining it is much more. Hunh?

What we and the facts all agree on, is that LAST YEAR ANGELS INVESTED $26 BILLION IN US COMPANIES!! Who on earth is claiming it is anything higher than that??

Meanwhile, in a recent blog post on Small Business Trends, Scott opines that so-called “active investors” are a myth, because even among the cream-of-the-crop angels, the self-reported average time they spend with their portfolios is a miniscule 41.9 minutes a week [gasp!] Once again, I can confirm his facts, but substantively disagree with his conclusions!

I’m one of his “cream of the crop” active angel investors. I’m the Chairman of New York Angels (one of the largest and most active angel groups in the country, with 22 deals this year alone), have 70+ companies in my personal portfolio, and spend my full business time on angel-related activities. That said, it would be absolutely correct to say that there are some (indeed, many) ventures in which I have invested on which I spend less than 41.9 minutes per week. And the problem with that is??

I’m not running the business, the entrepreneur is! The last thing he or she wants is me looking over his or her shoulder and micro-managing the company. If that’s what I need to do, then I shouldn’t have invested in this venture in the first place.

Think about it this way: if, after pulling together an investment round of half a million dollars for a company (including corralling the investors, structuring the deal terms, and doing due diligence analysis, all for no compensation, and then investing $100,000 of my own money), I followed through by serving on the company’s Board of Directors (which would be active involvement indeed), kept updated by asking for and reading weekly management reports (which is way more than most CEOs want to provide), referred the CEO to a dozen high-level sales and business development prospects from my network during the year, and then introduced them to five top-tier venture capital firms for potential participation in a follow-on investment round…would that be the kind of “active” angel investor you’d like to have?

I think the answer from any entrepreneur I’ve ever met would be “yes, in a heartbeat!”

Now, let’s look at my time involvement post closing:


  • Bi-monthly, three-hour, in-person, board meetings = 18 hours
  • Reading weekly reports for 15 minutes (except Christmas week, at 4 minutes) = 12.8 hours
  • A dozen sales/biz-dev referrals, taking me 15 minutes each = 3 hours
  • Five VC phone introductions with follow up emails, half an hour each: = 2.5 hours


Total time spent annually = 36.3 hours

Total time spent weekly per venture = 41.9 minutes

And this somehow proves that “active angel investors” are a myth? I’m confused…

PrintView Printer Friendly Version

References (1)

References allow you to track sources for this article, as well as articles that were written in response to this article.
  • Response
    FAP trade surplus and currency Turbo is the complete online home- based income solution for wise people who want to trade profitably in the foreign exchange market without knowing anything about the foreign exchange market; want to free themselves from the constant threat of job loss or wage cuts from their ...

Reader Comments (2)

Hey David, my name is also David, i'm 22 and live in the San Fransisco bay area, i have some ideas i'd like to get your opinion on.. i told my friend the idea and he linked me to a video of you,


and i thought This is the guy i need to ask. did some searching and found this blog! if u have time please get back to me at slooie@gmail.com

January 10, 2009 | Unregistered CommenterDavid O'Keefe

So glad to have this myth officially debunked, and to have someone in your position to go on record against the whole idea of investors trying to run the companies. Too many cooks...

I would imagine the proper investment is made into the entrepreneur, more so than even into the idea. If you don't trust the entrepreneur to make the right choices, then why are you investing into his business?

July 24, 2010 | Unregistered CommenterWesley Verhoeve
Comments for this entry have been disabled. Additional comments may not be added to this entry at this time.