Angel Investors have been responsible for funding some of the biggest names in business today – Google, Yahoo!, Starbucks and Costco to name a few. Yet, many small business owners do not understand what an Angel Investor is or how to find one.
Angel Investors (AI) are individuals or groups of individuals who invest their own money in startups or existing companies still in the early stages of growth. They are increasingly filling a financing gap between the seed money businesses need for startup and the investments venture capitalists make once businesses get more established.
AIs are generally motivated by more than a fat return on their investment – though they usually do see a 20 to 25 percent ROI. Most are entrepreneurs themselves who are still interested in helping build new businesses and create jobs to stimulate their local economy.
“Angel investors offer more than money,” said Catherine V. Mott, Chairwoman of the Angel Capital Association, which represents 150 angel capital groups in 49 states and provinces. “They open up their Rolodexes, make introductions, and help with financial and marketing strategies. It’s very hands on.”
In exchange for their investment, AIs take an equity share of the company. They generally do not receive their returns until the company is sold – usually between five and 10 years later.
“There’s a thrill in being able to find good companies,” Mott told BusinessNewsDaily. “It’s very personally satisfying.”
Statistics on AIs paint a clearer picture of their goals and intentions:
- In 2009, AIs invested $17.6 billion in 57,000 deals (Venture Capitalists nearly the same amount, but in only 2,800 deals)
- AIs like to invest a minimum of $20,000 in any given company at one time
- AIs usually invest in local companies – 30 percent within a two hour drive
- 35 percent of 2009 AI investments were in startups; 47 percent were in early stage businesses
- The number of AI group – which pool their investments together – has increased from 100 in 1999 to 300 today
- The average investment per deal by AI groups is between $250,000 and $500,000
- Almost all AI investments are made in companies which are preparing for liquidation and exit – in other words, companies that are planning to sell themselves to larger firms
Companies looking for an AI should know what AIs are looking for when they seek out investment opportunities. CEO’s should be experienced in their industry, have good management skills and, most importantly, should be very “coachable.” AIs are also looking for a “complete and balanced” team of managers who are experienced working together, Mott said.
Companies that anticipate $30 million in revenue over five years, have a niche market and are ready for customers, are of particularly interest to AIs. The best place to look for an AI is in your own back yard.
“Angels want to be able to drive by the company and see that the CEO’s car is in the parking lot and the lights are on,” Mott said. “It’s more than just sitting in an office waiting for our returns.”