Angels With A Cause

Devil’s In The Details
Angel investments are some of the riskiest, least transparent and most illiquid assets in which affluent clients can invest. Yet they’re also among the best performing, with returns comparable to those of venture capital investments. Several studies show that angel investments have median returns of 18% to 38% or more.

Some say wealth advisors aren’t eager to be part of impact angel investing because they’re concerned about the potential liability for recommending or giving an opinion on anything so risky. Some advisors may also be deterred because they believe it’s difficult to earn fees on angel investments. Advisors may also lack the expertise to evaluate early-stage investments for either financial or impact returns, or both.

But those involved in impact angel investing say there are many clients in the niche that would appreciate help from financial advisors. Some predict that early-stage companies will soon be pitching to advisors on behalf of clients who want their advisors to source deals and handle the vetting process, leaving the final decision to invest up to the clients.

One reason for advisors to consider joining angel groups is the ability to get help with due diligence on potential startup investments that clients bring to advisors. If a group of experienced angels believes the investment is a dud—that it won’t provide a reasonable financial return or solve a significant social or environmental concern—the advisor doesn’t have to be the one to disappoint the client.

Balderston says that several wealth managers and family offices interested in impact angel investing have recently contacted both Investors’ Circle and Patient Capital Collaborative. “The impetus is coming from the clients as far as I can tell. They’re urging their wealth managers to find opportunities like this,” he says.