The state of venture capital is changing, with federated groups of angel investors emerging as an alternative to big VC firms to fund smaller startups. That’s according to James Geshwiler, managing director of Common Angels, which is one of a new breed of VC firms. Geshwiler spoke at the opening session of Nantucket Conference on Thursday.

Common Angels is one of approximately 120 such groups in the U.S. representing about 4,500 investors, Geshwiler said. The groups are forming to fill a void at the low end of the market left by the big venture capitalists, which have seen the average size of their funds double to $200 million in the last five years.

Basically, he said, VC firms won’t consider funding rounds of less than $5 million. They’re going for the big score. But plenty of viable companies need a couple of million to get going and can yield nice returns in an IPO or buyout. Big VCs can’t be bothered with such small returns.

I was interested by the compelling cost benefits of this approach. Common Angels outsources most of its office space, technology and administrative expenses to its individual members. This federated model takes advantage of the efficiency of sole practitioners and small businesses by leveraging collaborative technology to communicate and make decisions without requiring big investments in real estate and other overhead. I think we’ll see a lot more companies emerging in all sorts of industries to take advantage of the power of this model.