02: Angel Investor Overview
Angels are well known in the entrepreneurial world as private investors that financially back startup companies. They are typically around 45 years old with an annual income of $90,000 and have experienced a high enough degree of business and/or entrepreneurial success that allows them to be deemed an accredited investor, meaning they have a net worth of at least $1M.
Unlike venture capitalists, angels are not professional investors that represent an outside company. Instead, they invest their own resources into the company. As a result, angels tend to give less money to entrepreneurial companies than VCs do and invest earlier in the startup lifecycle.
Angel investor groups are organizations made up of individual accredited angel investors brought together under the purpose of creating efficient financing presentations, pooling investment funds, and learning from one another. Angel groups saw a huge rise around the 1980s and 90s as the Internet’s influence grew and helped to establish networks of private investors. Because many individual angel investors are not listed in local directories, angel groups are an easier way for entrepreneurs to get their foot in the door with angel investments.
The amount of angel financing is rather large. According to Venture Research at the University of New Hampshire, 2008 saw angels invest $19.2 billion into the hands of new ventures. Collectively, angels typically invest no less than $100,000 and rarely more than $750,000 per startup. Each individual investor typically invests around $37,000 per startup.
Angels invest across industries as demonstrated in the sector breakdown below:
- Healthcare: 16%
- Software: 13%
- Retail: 12%
- Biotech: 11%
- Industrial/Energy: 8%
- Media: 7%
- Other High-Tech: 33%
The Growth of Angel Groups
Time Efficiency: For both entrepreneurs and angels, an established angel group can provide the most efficient way of finding an investment relationship. This is due to the fact that entrepreneurs can present their business plans to many angels at once. For example, an entrepreneur can present to roughly 50 potential investors at once – much more effective than 50 individual presentations. It also allows for angels to hear multiple presentations within a day and be able to measure their options against a broad spectrum of choices.
Pooled Investments: An average angel will invest $37,000 in a company. Because of each angel’s monetary limitations, individual angels can collaborate and pool their funds into group investments in order to increase the amount of investment into the startup at hand thereby increasing the power of the angels’ negotiation terms.
Due Diligence: A comprehensive background check of investment opportunities allows angels with expertise in areas such as finance, law or marketing, to assess the opportunities for the best potential for return on investment. By working together as an angel group to conduct due diligence, angels research and validate both financial and legal documents as well as marketing strategies presented by an entrepreneur.
Social Benefits: Both information flow and learning from one another are benefits of being involved in an angel group. These organizations often provide specific training services, group and committee meetings, as well as lectures and discussions that would broaden knowledge and enrich the investment experience for members. Finally, there is a social benefit to surrounding yourself with people of similar interests. Here, mentors can be found, business relationships jump-started, and friendships created.