Angel investor

From ArticleWorld

An angel investor, or business angel in Europe, is an affluent individual who provides capital for a business start-up. Typically in exchange for ownership equity.

Unlike venture capitalists, angels typically do not manage the pooled money of others in a professionally-managed fund. However, angel investors often organize themselves into day angel networks or angel groups to share research and to pool their own investment capital.


Angel capital

Angel capital fills the gap in start-up financing and venture capital. While it is usually difficult to raise more than $100,000 - $200,000 from friends and family, most venture capital funds will not consider investments under $1 - 2 million.

Thus, angel investment is a common second round of financing for high-growth and potential start-ups, and accounts in total for more money invested annually than all venture capital funds combined.

High-risk high returns

Angel investments bear extremely high risk, and thus require a very high return on investments. Some angel investors seek a return of at least 10-20 times their original investment within 5 years, through a defined exit strategy. Angel financing can thus be an expensive source of funds.

Who they are

Angel investors are often retired business owners or executives, who may be interested in angel investing for other reasons in addition to pure monetary gain.

These include wanting to keep up to date with current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a less-than-fulltime basis.

Thus, in addition to funds, angel investors can often provide valuable management advice and important contact information.

To date

In 2004, according to the Center for Venture Research, 18.5% of deals that got through the early screens of angel groups and were presented to investors with funding, up significantly from 10% in 2003, which is about the overall average.

But since this figure discounts the substantial initial screening, the percentage of all companies seeking angel financing that actually receive funding is closer to 0.5%-1%.

Who got the money

Approximately 45,000 US companies received angel funding in 2004, and on average, each raised about half one million in US$. The lion's share went to high-tech companies, and the single biggest category within high tech was software development.