Looking For An Angel — Investor That Is: Know What You’re Looking For.

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.

By Dee Power

http://www.avce.com/

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.

Directory of Angel-Investor Networks

Need help getting started in your search for angel funding? Here’s a directory of angel networks in the United States, broken down by geographical area.

http://www.inc.com/articles/2001/09/23461.html

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They’re Back: Technology Industry Spotting Angels Once Again

By:
Darrell Dvorak

http://www.nasvf.org/web/allpress.nsf/pages/8251

They’re back.

In its forecast of the top 10 entrepreneurial trends for 2004, Red Herring magazine recently proclaimed: "Angel investors are back – funding the small start-ups that will be tomorrow’s giants." Angels, of course, are an important source of venture financing.

The Center for Venture Research (CVR) at the University of New Hampshire estimates in 2002 that 200,000 angels invested almost $16 billion in 36,000 ventures. This investment level was down 50 percent from 2001 because, like most other investors, angels got burned in the tech and Internet meltdowns so the pool of potential angels is much larger.

So, if angels are back, entrepreneurs are excited. How important, though, are angels to entrepreneurs in the Midwest: the perennial backwash of entrepreneurial financing?

It’s tough to say. Aside from the CVR data, there is very little information on angel activity especially at local, state and regional levels. By definition, angels are individual investors investing their own funds in private companies. Public information, therefore, is very limited.

One popular proxy for angel activity is the existence of angel investor groups, which have much more public exposure than individual angels and have become very popular in the last several years. Their popularity stems from the perceived advantages for angels to be part of a group rather than going it alone: sharing of diverse expertise, combining funds and sharing risk and pre-screening opportunities.

In addition, angel groups are considered a good proxy for local angel activity because most angels have a strong preference for investing in their own "backyards". Even more than for venture capitalists, it’s easier for angels to keep tabs on a local investment compared to one that’s a plane ride away.

Interestingly, a recent effort to extend the investment reach of angels beyond their own backyards by means of "joint investment" has been initiated by the Angel Capital Alliance, which is sponsored by the Kauffman Foundation of Kansas City, Mo. Still, it’s far too early to see any results.

So, what’s the status of angel groups in the six-state Midwest region? Well, a Google search turns up an impressive 26 organizations that characterize themselves as angel investor groups or as channels to angels. This ranges from an incredible 11 groups in Wisconsin to a single group in Indiana.

In comparison, a California search turns up 12 angel groups, so it appears that the Midwest has reasonably significant angel activity. Appearances, of course, don’t have fat wallets.

Based strictly on their Web presence, the quality of these groups varies widely and ranges from well-established groups with helpful Web sites to groups with dead-linked URLs. Few of the sites have current information on the investments their members have made, which makes it difficult to judge their significance.

Equally unsettling, it’s far too easy to claim to be an angel because there’s no certification procedure. It’s also easy to claim to be an angel group because there are no standards of performance and no public-reporting requirements.

In contrast to venture capitalists, angel investing is entirely optional and they don’t have limited partners expecting a certain level of deal activity. Moreover, the entrepreneurial media (at least in the Midwest) don’t seem to provide much help in assessing the activity of angel groups.

So, entrepreneurs are pretty much on their own to gauge the value of pursuing any particular angel group. But remember: even if they are members of a group, angels invest as individuals. Ultimately, an entrepreneur is trying to locate individuals who see a particular venture as a great opportunity. Those folks may or may not be part of the angel groups.

Most important, there is another way to find those angels (especially if you understand what you want). Several years ago, the Entrepreneurship Center at MIT helpfully grouped angels into four categories depending on what they bring to the company they are investing in:

1) Guardian angels, who have both entrepreneurial and industry expertise.

2) Entrepreneur angels, who have entrepreneurial expertise but in a different industry.

3) Operational angels, who have industry expertise but have not been entrepreneurs.

4) Financial angels, who bring nothing but their cash.

Entrepreneurs should look first to guardian angels because they have an advantage in understanding and managing two of the most important risks of venture investing. Other factors being equal, they are more likely to be successful investors, more likely to be long-term angels and, if they are from your industry, more likely to understand your vision and consider investing in your backyard.

The best way to find these angels is to network within your industry. This has several potential advantages: you may already have a well-established network, one angel is more likely to know others in the same industry and later investors like seeing early investors who know something about the target industry.

Finally, soliciting angels from your own industry may save you all a lot of time and money because, if all you get from these angels are rejections, then maybe you need to rethink your plans. After all, you don’t want to be known as one of those fools who rush in where angels fear to tread.