The Role Angel Networks Can Play in Economic Development

Angel Investors

Angel InvestorsIf you have been following CASE’s work over the last 5+ years, you know that we have been fortunate to undertake a number of projects for USAID, the US government’s international development agency and a catalytic actor driving development results.  As part of USAID’s Higher Education Solutions Network (HESN), our  Social Entrepreneurship Accelerator at Duke (SEAD) worked with 25 global health innovators seeking to scale their impact and contribute to economic development in their regions.  A key objective of our work on SEAD was, “to serve as a bridge between our innovators and the impact investment community to facilitate increased access to investors, innovative deal structures, instruments, and funding partnerships.”  This means that in addition to directly supporting the social innovators in the SEAD cohort, we sought opportunities to participate in and lead field-building activities that address some of the barriers between the investment community and social ventures seeking funding to scale their impact.  

A continuation of that work is a new 14-month project we have undertaken on behalf of USAID and to evaluate angel network models.  In short, we are digging deep into the ways that angel investor networks support early-stage entrepreneurs and can contribute to USAID’s economic development goals.

What do angel networks have to do with economic development?  Let’s break this down:

USAID knows that entrepreneurs play a pivotal role in driving economic development, by starting businesses that contribute to the local economy, creating jobs, and developing solutions that make people’s lives better.  Entrepreneurs need capital to fuel the growth that contributes to that economic development. That’s where investors come in.

Investors seek a robust pipeline of investable enterprises, and impact investors are specifically looking for those that can generate both a financial and an impact return through their business growth.  Unfortunately, a “pioneer gap” exists between early stage enterprises that need funding to continue to develop, and the stage at which many investors are generally comfortable investing.  The Partnering to Accelerate Entrepreneurship (PACE) Initiative within USAID seeks to catalyze private sector investment in early stage enterprises and identify innovative models that help support entrepreneurs as they bridge that pioneer gap.

Enter: Angel investors.  Angel investors are individual investors who make relatively small investments to support enterprises through their more high-risk early stages.  Some of the businesses angel investors invest in will develop to the stage where they are ready for investment from other types of investors – they will be ready for a hand-off to other parts of the investment chain.  USAID has observed an encouraging increase in angel investor support for growing businesses in developing countries, and thus they want to explore systematic ways development agencies can leverage that trend in pursuit of sustainable development.

How does a huge development agency engage with individual angel investors? Leveraging angel networks.

Angel investors often invest individually; by definition, they are beholden to no one – they are using their own money and their own criteria for investing, with no external stakeholders to report to.  They are a dispersed group, hard to get data on, and difficult for an agency like USAID to work with on an individual level.

But many angel investors collaborate with each other through angel networks.  There are several models for angel networks, but they often involve a shared investment pipeline, shared due diligence, and co-investing in deals.  In addition, angel networks often are a pivotal source of support for the broader entrepreneurial ecosystem in a developing region.

Where our research goes next: Angel network models and how to engage with them.

The 14-month project we have undertaken investigates the angel network models in some of the key areas USAID works – Eastern Africa, Southern Africa, and Latin America – to uncover best practices in those models, and the specific ways USAID could leverage these networks in support of the US government’s development goals.

We are pleased to be collaborating on this work with Bonny Moellenbrock, Principal at Millbrook Impact and former Executive Director of Investors’ Circle (now Social Venture Circle), the largest impact angel network in the world, and with faculty and staff at the Bertha Centre for Social Innovation and Entrepreneurship at the Graduate School of Business, University of Cape Town.

Our work is broken into a few phases, starting with research on the current state, structures, and economic impact of angel investors in the regions of focus.  We will be interviewing members of angel networks and other players in the ecosystems where they operate. We look forward to producing case studies to highlight best practices we find in angel investor engagement and data collection. Finally, we will be producing a best practices guide for productive engagement with angel investors.

Our hope is that this work gives USAID and other development agencies a playbook by which to leverage the ways angel investors support enterprises bridging the pioneer gap and contributing to economic development in their regions.

The Evaluation of Impact Angel Investment Models project is connected to The Social Entrepreneurship Accelerator at Duke (SEAD).  SEAD is funded by the United States Agency for International Development (USAID) under cooperative agreement number AID-OAA-A-13-00004.  SEAD brought together interdisciplinary partners through a coordinated effort across Duke University and leveraged institutional relationships and relationships to create an integrated global health social entrepreneurship hub for diverse stakeholders across the globe.  SEAD was co-led by CASE and Innovations in Healthcare, and involved the Duke Global Health Institute and Investors’ Circle.