About Angel Investors

"Angel" is the term once referred to rich individuals backing Broadway plays, but suffice it to say that most angels likely to invest in your business have a different motivation than supporting the arts. Most angels have been entrepreneurs themselves, so they understand your situation, have vision and can stomach the risk. Often, these people have a personal interest in the subject of your business and therefore may put in more money at a more favorable valuation to you. Amounts they may invest vary greatly, but you can imagine that as your requirements increase, the number of angels likely capable of investing diminishes exponentially.

$50,000 to $250,000 are likely investments per individual. However, you could enlist a "Band of Angels" to provide the full amount of money you need.

Angel Investors

The Center for Venture Research (CVR) has conducted extensive research on the angel marketplace for the past 20 years. CVR reports that there are approximately
250,000 angels currently active and that they invest in about 50,000 small companies each year. Angel capital grew from roughly $30 billion to $50 billion between
1998 and 1999. The total funding by angels in 2000 is expected to be $60 billion.

The average investment in a company is approximately $660,000 and the average investment by each angel is about $80,000. It was further estimated that about 300,000 growing companies and about 500,000 start-ups need equity capital each year. It was also estimated that the number of potential angel investors is 1.5 to 2.5 million.

The characteristics of angel investors as reported by CVR are as follows:

• Angels typically invest in ventures involved in markets and technologies with which they are familiar.


• They invest relatively close to home, typically within one day's drive (or a flight permitting return that day).


• They are "active" investors, serving on a working board of directors or providing guidance through an informal consulting/mentoring role.


• As a group, private investors prefer to invest at the seed and start-up stages in the life of the venture.


• They are patient investors. Exit horizons tend to be five to 10 years or more.


• A round of angel financing is typically less than $1 million and, in most cases, less than $500,000.


• Angels tend to co-invest with trusted friends and business associates. The size of one investor's participation in a round of financing is usually in the $25,000 to $100,000 range.


• Angels often take bigger risks or accept lower rewards when they are attracted by the non-financial characteristics of an entrepreneur's proposal. They are, quite literally, "adventure" investors.


• Their investment terms and conditions tend to be briefer and more informal than those of venture capital funds.

More about Angel Investors

What Angels Want
An article from Inc. magazine. "A look at the types of ventures angel investors are likely to put money into, and the kinds they'll never touch. The verdict? Think technology, have a niche, and hope the investor is familiar with it."

Evaluating Angel Financing
Questions board members should ask about angel financing strategies. Over the past several years, liberalization of certain securities laws and the stock market boom have resulted in increasing levels of angel financing. Under Rule 504 of Regulation D of the federal securities laws, investors purchasing up to the first $1,000,000 in stock in a private company in a 12 month period may typically resell their shares following an IPO without regard to the holding periods imposed under Rule 144. In the past, investors had to wait two years or more following their investment before they could resell under Rule 144.

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