Angel investor: (n.) an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital. Unlike venture capitalists, who manage the money of a professional fund, angel investors fund start-ups between friends and family. Angel investment is a common second round of financing for high-growth start-ups, and accounts in total for almost as much money invested annually as all venture capital funds combined.
Of the U.S. companies that received angel funding in 2007, the average capital raised was about $450,000. However, there is no “set amount” for angel investors, and the range can go anywhere from a few thousand, to a few million dollars.
- U.S. angels invest a total of around $20 billion per year in around 60,000 businesses.
- Angels invest in around 1 out of every 10 business investment deals considered, or 10%.
- The average angel investor is 47 years old, college educated, and self employed (or has been self-employed).
- The average angel investor has an annual income of $90,000, a net worth of $750,000, and invests $37,000 per venture. (Angels rarely invest more than a few hundred thousand dollars in a venture.)
- Nine out of 10 angel investments are devoted to start-ups with fewer than 20 employees, and 7 out of 10 angel investments are made locally (within 50 miles of the angel’s home).
- Nine out of 10 angels provide additional support via personal loans or loan guarantees to the firms in which they invest.
- Angels spend an average of 3.5 months conducting due diligence on each investment.
- The most common reasons angels reject deals are insufficient growth potential, overpriced equity, insufficient talent of the management, or lack of information about the entrepreneur or key personnel.
In these post-recession times, start-ups and entrepreneurs are increasingly turning to angel investors. A Thunderbird School of Global Management blog post, citing the Center for Venture Research, found that a total of 61,900 entrepreneurial ventures received angel funding in 2010, an increase of 8.2% over 2009 investments. The number of active investors in 2010 was 265,400 individuals, a small growth of 2.3% from 2009. The significant increase in total dollars, coupled with the rise in the number of investments resulted in a larger deal size for 2010 (an increase in deal size of 5.4% from 2009). These data indicate that angels have significantly increased their investment activity, and are committing more dollars resulting from higher valuations.