What are Angel
And How Can it
Help Your Business?
investors are often retired entrepreneurs or executives, who may be interested
in angel investing for reasons that go beyond pure monetary return. These
include wanting to keep abreast of current developments in a particular
business arena, mentoring another generation of entrepreneurs, and making use
of their experience and networks on a less-than-full-time basis. Thus, in
addition to funds, angel investors can often provide valuable management advice
and important contacts.
typically invest their own funds, unlike venture capitalists, who
manage the pooled money of others in a professionally-managed fund. Although typically reflecting the investment judgment of an individual,
the actual entity that provides the funding may be a business, limited
liability company, trust, investment fund, etc. The
Harvard report by William R. Kerr, Josh Lerner, and Antoinette Schoar tables
evidence that angel-funded startup companies are less
likely to fail than companies that rely on other forms of initial financing.
capital fills the gap in start-up financing between "friends and
family" who provide seed
funding, and venture capital. Although it is usually difficult to
raise more than a few hundred thousand dollars from friends and family, most
traditional venture capital funds are usually not able to consider investments
under US$1–2 million. Thus, angel investment is a common second round of
financing for high-growth start-ups, and accounts in total for almost as much
money invested annually as all venture capital funds combined.
investments bear extremely high risk and are
usually subject to dilution from future investment rounds. As such, they require a very high return
on investment. Because a
large percentage of angel investments are lost completely when early stage
companies fail, professional angel investors seek investments that have the
potential to return at least 10 or more times their original investment within
5 years, through a defined exit
strategy, such as plans for an initial
public offering or an acquisition.
While the investor's need for high rates of return on any given investment can
thus make angel financing an expensive source of funds, cheaper sources of
capital, such as bank financing, are
usually not available for most early-stage ventures, which may be too small or
young to qualify for traditional loans.
there are no public exchanges listing their securities, private companies meet
angel investors in several ways, including referrals from the investors'
trusted sources and other business contacts; at investor conferences and
symposia; and at meetings organized by groups of angels where companies pitch
directly to investor in face-to-face meetings.