The
Insiders Guide to Angel Investing
March 13,
2008
David Rose
is the founder of New York Angels .
He had some
highlights on Angels and Angel investing in the US -.
- There are 600,000 new companies started each year in the US.
Of those 350,000 are self-funded, 200,000 are funded by friends and
family, 50,000 by Angel
investors, and a mere 1,200 by venture capitalists.
- Angels are generally about 57 years old, well educated, 15 years
of entrepreneurial experience, have been involved with and/or started on
average 2.7 ventures.
- To be an accredited investor you must have + $1,000,000. in net assets and have made $200,000 revenue
annually for the past 2 years.
- The average Angel investor has spent 9 years investing, had done
10 investments, had 2 exits (profitable or lost their money), and 10% of
their wealth is tied up in Angel investments.
- Angels look for companies with Scalable Business Models, an
“Unfair Advantage,” a Great Entrepreneur, External Validation, Low
Investment Requirement, Reasonable Valuation ($1 to $3 million pre-money
range), and a 10 times or higher return on their investment within 5
to 7 years.
- The most important characteristics an Angel investor looks for in
an Entrepreneur is Integrity, Highly Competent, Experience, Knowledge,
Skill, Leadership, Commitment, Vision, Realism, Passion and Coachability.
Angel investors are affluent individuals who provide money and
access to expertise to start-up companies in exchange for equity, repayment
with interest or the option to buy stock later at a reduced rate. Unlike
venture capitalists who manage the pooled money of others, Angels generally
invest their own funds. Angel groups, which typically have about 50
members offer a social network for individual investors, holding regular events
at which carefully screened companies give presentations and request money.
From the Angel Capital Association’s 2008 Angel Group Confidence Report, here
are some enlightening statistics on the nature of nationwide Angel investment:
- Angel groups invest
early with 82 % saying they invest in seed and start-up companies and 85 %
investing in early stage companies. Only 45 % invest in expanding or later
stage companies.
- The average Angel
group invested a total of $1.9 million in 4.5 new companies and 3 existing
portfolio companies in 2007. They invested an average of $150,000. per funding round.
- Angels invest alone,
as 77 % of groups allow individuals to choose whether they will invest.
- Angels invest money in
hot industries. Software, medical devices and equipment, business products
and services, industrial and energy, IT services, and biotechnology were
among the most invested in industries with more than 50 percent of groups
saying they have an interest in each category.
- While investing
locally is important to nearly 30 % of Angels,
leveraging expertise and having the opportunity to invest in a
quality venture is preferred.
- Angels need to be
selective. Given the significant challenges to address for a
business to be successful, the average Angel group screened fewer than 180
companies and presented less than 20 for investment in 2007.
- Angel investing is a
tough business. Only ¼ of Angel groups had at least one investment
that exited through a merger, acquisition, initial public offering (IPO)
or positive exit in 2007.
- Angel groups are
growing. 68 % of responding Angel groups were
formed since 2002 and almost 50 % said they grew slightly or significantly
in number of participating accredited investors. Only 13 % said
their membership decreased.
- Things are looking up
for Angel investors. About 45 % of Angel groups said that both quantity
and quality of applying companies increased. Responding Angel groups
also said that they expect to see continued increases in the number of
investments and total dollars invested (55 %), quantity and quality of
presenting companies (48 percent), and number of individual member
investors (36 %).
- More than 60 % of
Angel groups think that fewer than 5 % of their investments will exit in
2008