Where did the term "angel investor" come from?
University of New Hampshire Professor William Wetzel coined the term "angel investor," taken from the early 1900s' practice whereby wealthy businessmen would invest in Broadway productions. Today "Angels" typically offer expertise, experience and contacts in addition to money.
How would you describe angel investors and their activities?
Angel investors are individuals who invest in businesses looking for a higher return than found in traditional investments, and who often relish the thought of being a coach, a hands-on team member, or giving something back to the community. Many are successful entrepreneurs who want to help other entrepreneurs get their business off the ground. Angels usually provide the bridge capital from the self-funded stage of the business to the point the business qualifies for the level of funding provided by professional venture capitalists (VCs) or corporate strategic partners. An angel "round" of financing is typically $100,000 - $ 1 million. Professional VCs average $10 - $14 million per round, mostly in later stage companies, though a relative handful of seed stage VCs will fund smaller, earlier amounts, from $500,000 to $2.5 million.
Are there many angel investors?
With more than 2,500,000 individuals in the U.S. with a net worth in excess of $1 million, it is estimated that there are perhaps 400,000 active angel investors in the U.. alone, funding 50,000 businesses per year. By comparison, professional venture capital funds about 5,000 companies each year. The total angel investment per year is estimated at about $40 - $100 billion, about twice the total of all professional VCs. Also, there are at least 170 known angel groups throughout the United States. The Ewing Marion Kaufman Foundation in Kansas City has done research on business angel investing groups, along with William Wetzel at the University of New Hampshire's Center for Venture Research.
What is the profile of the typical angel investor?
The "average" private investor is 47 years old with an annual income of $90,000, a net worth of $750,000, is college educated, has been self employed and invests $37,000 per venture.
Most angels invest close to home and rarely put in more than a few hundred thousand dollars.
Informal investment appears to be the largest source of external equity capital for small businesses. Nine out of 10 investments are devoted to small, mostly start-up firms with fewer than 20 employees.
Nine out of 10 investors provide personal loans or loan guarantees to the firms they invest in. On average, this increases the available capital by 57%.
Informal investors are older, have higher incomes, and are better educated than the average citizen, yet they are not often millionaires. They are a diverse group, displaying a wide range of personal characteristics and investment behavior.
Seven out of 10 investments are made within 50 miles of the investors home or office.
Investors expect an average 26% annual return at the time they invest, and they believe that about one-third of their investments are likely to result in a substantial capital loss.
Investors accept an average of three deals for every 10 considered. The most common reasons given for rejecting a deal are insufficient growth potential, overpriced equity, lack of sufficient talent of the management, or lack of information about the entrepreneur or key personnel. There appears to be no shortage of informal capital funds. Investors included in the study would have invested almost 35% more than they did if acceptable opportunities had been available.
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