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.
  • 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

Further Angel & Angel Group Insights

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