An angel is a high net worth, accredited investor who invests directly into promising entrepreneurial businesses in return for stock in the companies. Many are entrepreneurs themselves, as well as corporate leaders and business professionals.
Angels look for new innovative companies that can grow quickly in sales and value (creating jobs along the way). Examples of angel-backed businesses include Google, Yahoo, Amazon, Starbucks, Facebook, Costco, and PayPal.
In addition to financial capital, angels mentor and coach their portfolio companies, often leading to more healthy growth. They introduce entrepreneurs to potential customers and investors, see around potential problem areas, and help the start-up firms gain credibility in their fields. It should be noted that the best angel capital goes to the innovative companies that have the potential to grow to hundreds of employees and $50 million in sales within 3 to 7 years of start-up.
Angels generally invest their own money in start-ups and very early stage companies, while VCs mostly provide capital they have raised from others.
The best available estimates are that about 225,000 people have made an angel investment in the last two years (including accredited and non-accredited investors). Many more people could become angels based on a net worth of $1 million or more; the potential number of angel investors is 4 million.
Yes. A November, 2007 academic study of angel investments found that angels lose some or all of their money in 52 percent of their investment deals because the companies go out of business. The most sophisticated angels make at least ten investments in order to make a return on their investment, counting on one or two to provide nearly all of their return.
Individual angels are joining together with other angels to evaluate and invest in entrepreneurial ventures. The angels can pool their capital to make larger investments. The Angel Capital Education Foundation has 300 American groups in its database and lists many of them on its Web site, www.angelcapitaleducation.org.
Angel groups are generally easier for entrepreneurs to find and often become the central connector of deals in their communities, include some of the most sophisticated and active angel investors in the country, have been recognized for job creation and generation of additional venture capital for companies and are a leading indicator of angel investor activity.
More information is also available via www.angelcapitalassociation.org. ACA is the professional alliance of angel groups in North America and has 165 member angel groups, which represent 7,000 accredited angel investors located in 44 states and 6 provinces.