37 Angels’ Lee: Angel Investing Has Evolved From Side Gig to Asset Class of Its Own

Picture an entrepreneur pitching their business to a panel of investors to convince them that their idea is worth funding.

That’s the concept of the popular TV series “Shark Tank,” which Columbia Business School professor and 37 Angels founder Angela Lee says has contributed to the rapid surge in angel networks and full-time angel investors in recent years.

“It has just exploded. ‘Shark Tank’ is the most watched family show in the world, and that means a lot of people have been introduced to this investing class that they didn’t know about a decade ago,” Lee told PYMNTS in an interview.

And with that growing popularity, what was once a side activity has evolved into a more structured and recognized investment strategy sought after by an increasing number of founders today. “It’s become more professionalized, almost institutionalized as an asset class,” she explained.

When it comes to evaluating an investment, Lee, who has reviewed over 20,000 pitch decks and invested in 100 startups, said she is not one to focus on trends or what she referred to as “lagging indicators.”

Instead, she emphasized the importance of good fundamentals when it comes to successful startup investments, focusing mainly on “The 4 Ps”: the people behind the startup, the problem they are addressing, the progress they’ve made, and determining a “fair” price at which the investment is being made.

More specifically, Lee said data-driven learners as well as founders who know how to run a quick experiment, test the market and quickly pivot from their original idea if necessary tend to stand out from the crowd.

“It’s not the person who sits in a room and comes up with a brilliant idea. It’s the person who knows how to respond to the market at [a given] time, because startups take a long time to grow and on average eight to 10 years to exit,” she explained.

Overall, while equity crowdfunding has seen significant growth, it still accounts for a relatively small percentage of seed stage funding, Lee pointed out, creating space for angel investing to emerge as a vital player in the investment ecosystem.

As Lee said, “Equity crowdfunding is a little bit more efficient where you don’t have to talk to 100 investors. However, you’re not going to get that strategic help [such as] introductions to fundraisers or hires. You don’t get that through equity crowdfunding.”

Communicating With Clarity

The increasing focus on diversity, equity and inclusion (DEI) within the venture capital (VC) industry is a smart business move, Lee noted, pointing to research that shows that investing in underrepresented minorities and female founders can yield significant returns.

“Female founders are more capital efficient with the dollars that they raised. They do more with less,” she said.

She added that the limited partners (LPs) who provide the capital that funds use to make investments are also demanding a more diverse investment strategy from VC funds, leading to an increase in the number of underrepresented minority-founded startups.

That, and LPs’ growing interest in impact and transparency in investments are altogether changing the dynamics of the fast-growing angel investment landscape. “More and more LPs don’t just want to make a lot of money. They want to make a lot of money and at a minimum, not do harm in the world, but ideally also do good,” Lee said.

Finally, asked what advice an angel investor who has reviewed 20,000-plus pitch decks has to offer today’s founders; Lee’s view is that a major part of it boils down to developing clarity in how their business idea is communicated.

“My test for this is to take your two-minute pitch, share it with 10 people who you don’t know very well and then ask them, ‘What does my startup do?’ If people can’t respond to you in a concise and clear manner, it means you haven’t pitched clearly enough,” she said.