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Today I got a question about “International angel investing. Can it work?” – from Giandomenico that posted it in LinkedIn.

In his question he’s pondering about the angel investing in international level. The main point in the question is to compare it to more local investing and in what situations would international angel investing work.

My idea is that an international angel investment is frequently a co-investment with a local (and trusted) angel investor. Otherwise, international angel investment can happen if the amount of invested money is very small and limited for the investor and if both the investor and the entrepreneur are good at communicating through email and throughsoftwares like Skype, webex etc. But these are particular cases.

I think this is a very good question so I wanted to spend some time thinking about it, to answer properly. Here’s my answer to he’s question:

I think you pretty much got this right.

I also think it’s not so much of local or international than it is who knows who. Typically angel investments are referrals within a network. That network can be friends, friends of friends or some professional network and ultimately a professional angel investing network.

It just happens to be that there are more locally focused networks, since building any kind of international network in past have been much more difficult and costly.

So my answer for situation today, is that international angel investing happens where there are angels that have personal networks of friends that are internationally spread out.

How do I think this will change in the future?

1. Now that there are so much more effective tools that enable people to join networks that are international and find new friends online, this will start to increase.

2. When the next generation of angel investors grow from people commonly using facebook in their daily activities today, it’s very simple for them to also feel comfortable making investment decisions with their online (angel investing) friends, if they trust their opinions in other matters in their life as well.

3. When the costs related per investment comes down with more effective tools online and at the same time there is bigger pool of deal flow, that will enable new options.

Crowdfunding can also be fundingcrowd

If the concept for crowdfunding in fund raising side means;

- instead of looking for few people with plenty of money, choosing to find plenty of people with small money

Then for investing that can be translated to;

- instead of putting plenty of money to few startups, choosing to put little money to many startups.

From investors point of view this is a balance between how much they want to distribute their risk.

These are the reasons we are building Grow VC, to help enable this development for international angel investing. More deal flow to choose from, social network of like minded people to make new international friends, bring down the cost per deal and smaller investment to more startups.

We also believe, that in future by enabling more efficient tools it also makes sense to do smaller rounds more often to make it easier for startup to be agile and also limit the risk by investing into “momentum” and milestones based funding – milestone by milestone.

This all have possibility to make stuff more “real”, when the focus is more in the near future, rather than 3 years with hockey stick plan.

Last July my co-founder Jouko also wrote about this topic with the topic “invest globally or locally“. What’s your thoughts on this topic and how do you see this developing in the future?