Level Up Your Startup with Launchpad
A 12-week, self-paced program to help turn your idea into a scalable startup. Built in collaboration with Spark XYZ, Launchpad delivers expert guidance, a proven playbook, and direct investor access. Founders who execute effectively may even qualify for a potential $100K investment opportunity.
In 2007, a landmark study entitled Returns to Angel Investors in Groups by Robert Wiltbank and Warren Boeker offered a rare, data-backed glimpse into the world of angel investing. They surveyed hundreds of group-affiliated angel investors and observed over 1,100 exits—a key finding: more hours spent on due diligence correlated with higher returns. At the time, angel groups were among the most visible and formalized sources of early-stage capital—often the only institutional path for seed startups.
Fast forward to today: The startup ecosystem has evolved in ways that dramatically reduce the effectiveness of the strategies highlighted by that 2007 study. While it’s still true that due diligence is crucial, spending three to six months on a deal in a hyper-competitive environment can lead to a very different outcome than it did 15 years ago. This article explores why extended due diligence now carries diminishing returns and how, paradoxically, it can even damage an angel group’s reputation—ultimately hurting deal flow.
A Changed Early-Stage Funding Environment
Explosion of Micro-VCs and Seed Funds
Back in 2007, relatively few venture capitalists were interested in seed or pre-seed deals. Today, the landscape includes hundreds—if not thousands—of micro-VCs, each with specialized areas of interest and a strong appetite for early-stage opportunities. These funds typically pitch themselves to founders with the following:
• Fast decision-making, often weeks instead of months.
• Nimble processes, thanks to in-house teams or domain experts who can do targeted due diligence quickly.
Accelerators, Syndicates, and Rolling Funds
The rise of accelerators (e.g., Y Combinator, Pegasus, Techstars) and syndicate platforms (e.g., AngelList) has given founders unprecedented access to capital. Many programs provide seed money within days of acceptance. At the same time, syndicates can pull hundreds of thousands—or even millions—of dollars from a network of angels with just a few clicks. This speed and ease were unimaginable in 2007 when angel groups could take their time and still expect to land top deals.
Founder Leverage
Because so many capital sources now exist, the best founders have options. If one investor or group insists on an arduous three- to six-month vetting process, there’s almost always another route to secure funding faster and with fewer hoops. This competition for top startups puts a premium on speed and efficiency, challenging the assumption that more diligence hours automatically yield better results.
The Pitfalls of Prolonged Due Diligence
The 2007 study made perfect sense for its time: faced with a narrower pool of deals and fewer competing investors, angel groups could afford months of diligence. According to Wiltbank and Boeker, those extra hours generally led to better-informed decisions, presumably reducing the risk of catastrophic failures. But today, extended diligence can backfire in three main ways:
Opportunity Cost and Founder Reluctance
Top-tier founders are in demand. They can often choose whom to work with and are highly conscious of time-to-funding—especially when their runway is shrinking. A slow-moving angel group risks losing these founders to micro-VCs or seed funds that promise quick-term sheets. When word spreads that a particular group is “slow” or “bureaucratic,” it discourages other high-potential startups from engaging.
Reputation in the Startup Community
The startup ecosystem thrives on referrals and word-of-mouth. One horror story of a founder enduring six months of diligence—only to get turned down—can damage the group’s reputation for years. Founders talk to each other, especially at accelerators and in online communities. An angel group perceived as “tough” on diligence might once have been seen as professional; today, it’s often seen as unnecessarily rigid or behind the times.
Adverse Selection and “Leftover” Deals
Extended diligence can inadvertently filter out strong companies. The best teams won’t wait, while weaker or more desperate ventures stay the course, hoping for a yes. This creates an “adverse selection” scenario: the more a group prolongs the process, the lower the quality of the deals that remain in its pipeline. Over the long term, that can lead to worse portfolio outcomes despite spending all those extra hours.
Quality vs. Quantity of Diligence
A crucial distinction is emerging between the quality of diligence and the quantity of diligence hours:
• Efficient Diligence: Modern micro-VCs or fast-moving seed funds often employ a small team with deep domain expertise. They know the red flags to look for in a given sector—AI, biotech, or fintech—so they can reach a well-grounded conclusion faster.
• Long But Unfocused Diligence: Some angel groups may log extensive hours simply because they have a larger membership base, committee procedures, or less specialized knowledge. Those hours might not translate to higher conviction; they might just spread out the process.
The 2007 study didn’t measure the quality of diligence, only its duration. In 2025, a more targeted approach—a quick but concentrated two-week deep dive—could produce equal or better results than a six-month process while preserving a positive founder experience and the group’s reputation.
Why Founders Still Consider Angel Groups
It’s important to note that not all founders prioritize speed above everything else:
Sector-Specific Mentorship
• Some angel groups include accomplished entrepreneurs who can provide specialized guidance. Founders in complex fields like biotech or hardware might value that advisory network enough to accept a longer diligence timeline.
Local Ecosystem Support
• In certain regions, an angel group might be the biggest (or only) early-stage funding game in town. Founders building local relationships may appreciate introductions to local customers, suppliers, or talent pools.
Higher Commitment
• Sometimes, a thorough diligence process can signal deeper involvement post-funding. Founders might assume angels who dedicate that much time up front will remain highly engaged, offering mentorship and connections throughout the startup's life.
Still, these benefits must be balanced against a market that expects rapid fundraising. If angel groups don’t adapt, they risk missing out on many of the best deals, leaving them to compete over what’s left.
Paths Forward for Angel Groups
So, is there a viable future for angel groups in a world where speed is paramount? Many are already experimenting with ways to adapt:
Streamlined Committees
• Instead of requiring every member to vet each deal, groups can form small, expert-led sub-committees that perform a focused review. Once they give a green light, the broader group can fast-track a vote.
Adopting Standardized Legal Docs
• Using commonly accepted documents (like YC’s SAFE or standard convertible notes) reduces negotiation time and legal fees. Fewer custom clauses often mean faster closes.
Leaning on VC Partnerships
• Some angel groups partner with accelerators or micro-VCs, effectively outsourcing part of their diligence. If a startup has already been thoroughly vetted in an accelerator program, the group can piggyback on that.
Branding Around Value-Add
• Instead of emphasizing “quality via lengthy diligence,” forward-thinking groups stress their industry expertise, founder-friendly approach, and strategic connections. They focus on showing how their post-investment support surpasses that of a typical fast-check investor.
Conclusion: Updating the 2007 Findings
The 2007 Returns to Angel Investors in Groups study was a watershed moment—at the time. It uncovered a strong correlation between increased due diligence hours and higher returns. But that correlation was context-dependent, arising in a market where angel groups had leverage and founders had fewer options.
Today, founders with great ideas and strong traction have multiple funding routes that are faster, more straightforward, and no less reputable. Angel groups still have a place, but extended due diligence now poses a real risk: the best startups won’t tolerate months of back-and-forth committees when they can close a round in weeks elsewhere. Moreover, the reputational impact of long-winded or overly picky processes can drive away precisely the kind of high-potential teams that yield 20x returns.
In short, diligence still matters—but it’s no longer a simple matter of “the more, the better.” As the startup world continues to accelerate, angel groups that cling to the extended timelines of the past could see their deal-flow weaken and their returns diminish.
The winning investors will be those who strike the right balance between smart (yet efficient) due diligence and the speed that founders now demand.
Learn More
Visit us at pegasusangelaccelerator.com
For Aspiring Investors
Designed for aspiring venture capitalists and startup leaders, our program offers deep insights into venture operations, fund management, and growth strategies, all guided by seasoned industry experts.
Break the mold and dive into angel investing with a fresh perspective. Our program provides a comprehensive curriculum on innovative investment strategies, unique deal sourcing, and hands-on, real-world experiences, all guided by industry experts.
For Founders
Pegasus offers three exclusive programs tailored to help startups succeed—whether you're raising capital or need help with sales, we’ve got you covered.
Our highly selective, 12-week, remote-first accelerator is designed to help early-stage startups raise capital, scale quickly, and expand their networks. We invest $100K and provide direct access to 850+ mentors, strategic partners, and invaluable industry connections.
The ultimate self-paced startup academy, designed to guide you through every stage—whether it's building your business model, mastering unit economics, or navigating fundraising—with $1M in perks to fuel your growth and a direct path to $100K investment. The perfect next step after YC's Startup School or Founder University.
A 12-week accelerator helping early-stage DTC brands scale from early traction to repeatable, high-growth revenue. Powered by Pegasus' playbook and Shopline’s AI-driven platform, it combines real-world execution, data-driven strategy, and direct investor access—plus a direct path to $100K investment—to fuel brand success. to fuel success.
A 12-week, self-paced program designed to help founders turn ideas into scalable startups. Built by Pegasus & Spark XYZ, it provides expert guidance, a structured playbook, and investor access. Founders who execute effectively can position themselves for a potential $100K investment.
An all-in-one platform that connects startups, investors, and accelerators, streamlining fundraising, deal flow, and cohort management. Whether you're a founder raising capital, an investor sourcing deals, or an organization running programs, Sparkxyz provides the tools to power faster, more efficient collaboration and growth.
Apply now to join an exclusive group of high-potential startups!