Entrepreneurs always need additional capital for their company. Friends and family have already contributed, the company doesn’t qualify for traditional bank loans, and venture capitalists aren’t interested. So what can an entrepreneur do? Look for an angel investor.
Angel investors are private individuals who invest their own money. In contrast venture capitalists invest money they have raised from financial institutions and wealthy individuals.
Angel investors fund more companies at an earlier stage with more dollars than any other kind of capital. According to the New Hampshire University Center for Venture Research, nearly two thirds of funding for new enterprises comes from private investors and there are almost 3 million people in the United States that have made an investment in a private company. Compare that to only 1000 active venture capital firms. VCs also invest nearly all their funds (75%-80%) in established companies, not start-ups or early stage.
Looking for an angel investor? Know what to look for. 50 angel investors around the country were surveyed.
Angels are middle aged. The average age of the respondents was 49. The youngest angel was 25. No angel admitted to being older than 75
They invest less than $ 100,000 in any one company at a given time. The average amount invested by the individual angel is $ 72,000. The range most often given was between $ 20,000 to $ 35,000 with the highest range of $ 250,000 to $ 500,000.
Angels are highly educated. 75% had graduate degrees, an additional 17% had graduated from college and 4% had at least attended college.
They are experienced in investing. 78% of the angels had more than five years of experience investing in private companies, 11% had less than 1 year, and 11% had from 3 to 4 year’s experience.
The great majority of angels are male. Only 10% of the angels were women.
Nearly all angel investors are accredited, which as defined by the Securities and Exchange Commission means that the individual has an income of at least $ 200,000 per year or has a net worth that exceeds $ 1,000,000 not including the value of their residence.
Angel investors are interested in a wide range of industries although the most interest is still generated from high tech and bio tech companies.
Angels invest for a number of reasons, and one of those reasons is to get a handsome return on their money. Angels expect a 34% annual return on their investment. Angel money is not free money, it is not a grant, and it is not charity or an entitlement. Many entrepreneurs are surprised to find out that angels have the same expectations as venture capitalists.
Most of the investments made by angels are close to where they live, so it makes sense for entrepreneurs to look in their own backyard first. It is unlikely that an angel who lives in Los Angeles will invest in a company located in Des Moines. Angels tend to be involved in their portfolio companies and that is more difficult when the company is located hundreds of miles away.
When looking for angel investors, one of the most important factors for the entrepreneur to keep in mind, is — that angels are individuals. While we can compile statistics from surveys and interviews to get a composite angel, angels are a diverse group of individuals. You could be sitting next to one right now, and not even know it.
Dee Power is the author of several business nonfiction books and the novel “Over Time.” She and her partner have developed the Capital Connection website to provide small business financing resources, including private investors, venture capital and loans to entrepreneurs. She writes about how to fix your credit