The great question I am wrestling with in my own career is what is the best way to create value and serve a community, in my case both the LGBT and Johns Hopkins alumni communities, and make money as an investor. The key part of the question is: what is the best way to get those two goals to reinforce and enhance each other, rather than having one detract from their other?
Affinity investing to make money while empowering a particular community you belong to has notable differences from traditional mercenary angel investing and venture capital. The most important are: you and your peer investors tend to care more and put in more effort above and beyond your potential monetary benefit to help that company and, also, that you and your peers tend to have an innate desire to help more entrepreneurs and companies in your community - in short its harder to say "no."
At my own syndicate Gaingels, the best answer we have come up for this question is to view ourselves more as an ecosystem that assists and funds different startups in different ways, then as a very specific, hyper-targeted funding mechanism that primarily focuses on model compatibility. As we have continued to grow and evolve, this ecosystem self-image has evolved into different funding modules that are targeted at maximizing returns for different types of companies: separate baskets for apples, oranges, and pears, as it were.
So, how can other groups apply this ecosystem mentality?
First, they must identify their core desire and competencies. For Gaingels, its two things: 1) identifying the best founders in our community, regardless of specific sector, and providing a high quality group of advisors to them because of our growing size and 2) providing enough added value to our portfolio companies that we are able to build stronger relations with them and continually push them to be more diverse as they become more successful, which in turn empowers both our community and other diverse communities underrepresented in venture capital.
Second, they must identify what types of companies seek them out and, equally, what types of companies they are most optimized to help. For my Gaingels syndicate, we are now broad-based enough in our membership to be true generalists. For Blue Jay, with exceptions, we are most optimized to assist in healthcare.
Third, they must design their funding mechanisms to optimize for these strengths, in order to maximize returns. Affinity investing can only succeed, and thrive, if its leaders are focused on generating even better - indeed far better - returns than the average mercenary investor.