An Angel Gave Me Money!

For many entrepreneurs, here is what comes to mind when they think of an angel investor:

Flying Money!

I had given a very brief sentence about what an angel investor in a previous article: basically, a person with high net worth who invests (usually up to $200,000) in early stage companies. Angel investors are usually the first individuals to make the investment in a company, even before the traditional venture capital firms. This means that they have the highest risk out of any investor barring the actual entrepreneurs of the company.

In return for this investment, angels usually will want to take an equity stake, and will be looking for a very high return from their investment (in the neighborhood of 20-30x). Sometimes entrepreneurs think that achieving angel investment is easier than from a venture capital firm, but this view is incorrect. What is truer is that the investment criteria will be different, not easier or harder.


Profile of an Angel
It is difficult to construct a profile of the average angel investor. Someone with a salary of $150,000 per year could be an angel investor; so could an individual with a salary of $5 million per year. Many angel investors have had previous careers starting their own businesses, or have worked for a venture-backed startup company. So in addition to providing small businesses with capital, they can also serve as mentors to the small businesses. Entrepreneurs can leverage this existing knowledge from angels and avoid making mistakes in their own business.

Angel Groups

Even though the average investment by an angel investor is small (<$200K), angel funding rounds are higher. Very few venture capital firms, if any, would consider an investment opportunity of less than $2 million. You’ll find that an angel round of investing will be anywhere from $500,000-$1 million. How can that be, you might ask? Individual angel investors will band together to form an angel group. Many times, these groups will take the name of the city where they are based. For example, up here in Minneapolis, there is group called the Twin Cities Angels. Some groups will have minimum salary requirements, while other groups are more informal.

Upside of Angel Investment

1. Your company may not have to solicit capital from venture firms later in their growth cycle
2. Many angels have individual expertise in one or more industries
3. Your business can tap into an angel investor’s current network and find more opportunities

Downside of Angel Investment

1. An angel investor may demand a consulting role or a board seat as part of their investment
2. They may want a higher equity stake than a venture capital firm would want based on risk
3. Multiple angel investors’ expectations may not be aligned as well as partners in a venture capital firm would be

Conclusion

Angel investors are a very diverse group of people, and there really cannot be an “average profile” for them. They provide a specialized form of investment, and without them many startup companies would have failed. To learn more about angel investors, I’ve attached a link at the bottom that will take you to the Twin Cities Angels page. It will show you what criteria they use, as well as previous companies they have invested in. You can also Google angel groups and see if there are any close to where you live.

Twin Cities Angels: http://www.tcangels.com/