Angel investing

Topics: Venture capital, Angel investor, Private equity Pages: 9 (2488 words) Published: March 13, 2014
Angel Investing: Frequently Asked Questions

What is an Angel Investor?
An angel investor is a high net worth individual who invests his or her own money directly into an early stage company, in return for equity (ownership) in the company. In addition to providing financial capital, angel investors mentor and coach their portfolio companies, and help fill in functional or skill gaps in the company. They introduce the companies to other investors, and to colleagues who may be able to increase the company’s value.

Most angel investors are entrepreneurs who have exited one or more businesses. They often invest in companies for reasons that go beyond monetary return. This may include staying in touch with new business developments, mentoring another generation of entrepreneurs, helping to run a company without the usual stress of day-to-day operational issues, and giving back to their communities by leveraging their skills.

Typically, angel investors invest in new, innovative companies that are highly scalable, that can quickly grow revenue and value. They primarily invest locally, so that they can stay in personal contact with their companies.

The term “angel” originally comes from Broadway, where it was used to describe wealthy individuals who provided money for theatrical productions. In one notable early angel investment, Harry Frazee, owner of the Boston Red Sox, used the proceeds from selling Babe Ruth to the Yankees (resulting in the curse of the Bambino) to finance a Broadway musical. The Center for Venture Research estimates that angel investors invested $19B in more than 55,000 startup businesses in 2008. Many successful large companies were started with angel backing, including Google, Yahoo, Amazon, Starbucks, and Facebook. What’s the Difference Between Angel Investors and Venture Capitalists? Angel investors generally are investing their own money, unlike ventures capitalists (VCs) who manage the pooled money of others in a professionally managed fund. Angel investments generally take place after the initial “friends and family” investors who provide the seed funding, but before venture capital investors. VC investments tend to start at $2M, while angel investments are typically smaller.

What are Angel Groups?
In an angel group, individual investors join together to evaluate and invest in entrepreneurial ventures, and, in some cases, pool their funds together to leverage their investments. Angel

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Angel Investing: Frequently Asked Questions

organizations come in many forms, but in general, they meet regularly, select entrepreneurs to make presentations to the group, and work together to conduct due diligence and define deal terms. For an angel investor, two main benefits of group membership are access to potential deals (deal flow) and the opportunity to discuss pros and cons of deals with other like-minded investors.

Because angel investors usually invest locally, there are many angel groups throughout the US, and in other countries. The Angel Capital Association, (ACA) has 165 angel groups, which represent 7,000 accredited angel investors in North America. According to the ACA, the average ACA member angel group had 42 members and invested a total of $1.94 million in 7.3 deals per year in 2007. In the Philadelphia region, angel groups usually invest between $250K and $500k in a company as part of a $1 to $2M investment round.

What is Angel Group Syndication?
Angel groups often syndicate deals, which means the groups join together to invest in a given company on the same terms. Since companies often require a greater investment than any one angel group will provide, and since angel investing requires significant research and preparation, syndication benefits both the investor and the entrepreneur. There is usually a lead investor who defines the deal terms, but in some cases the angel groups will work together to define the deal terms....
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