It’s the Angels’ Time
Not all venture capital is raised through formal sources such as public and private placements. Many wealthy people are looking for investment opportunities; they are referred to as business angels or informal risk capitalists.
Angel investors invest their own money when participating in startup fundraising rounds, where the typical amount raised ranges from $150,000 to $2,000,000. Since angel investors are very often individuals that have held executive positions at large corporations, they can often provide fantastic advice and introductions to the entrepreneur, in addition to the funds. Angel investments are high-risk, which is why this strategy normally doesn’t represent over 10% of the investment portfolio of any given individual. What angel investors look for is a great team with a good market that could potentially return 10 times their initial investment in a period of 5 years. The exits, or liquidity events, are for the most part via an initial public offering or an acquisition. Technology continues to be a hot favorite while mobile applications, software products, clean technology, hospitality, education, retail, food processing, and internet plays are blipping on the angel investor radar. Angel investments are still sector-agnostic and more dependent on the proposition and size of the company involved. According to the Halo Report, angel investors particularly like startups operating in the following industries: internet (37.4%), healthcare (23.5%), mobile & telecom (10.4%), energy & utilities (4.3%), electronics (4.3%), consumer products & Svcs (3.5%), and other industries (16.5%). The dominating geographic area, in terms of number of angel investments, is Silicon Valley.
Here is what angels particularly care about:
- The quality, passion, commitment, and integrity of the founders.
- The market opportunity being addressed and the potential for the company to become very big.
- A clearly thought out business plan, and any early evidence of obtaining traction toward the plan.
- Interesting technology or intellectual property.
- An appropriate valuation with reasonable terms.
- The viability of raising additional rounds of financing if progress is made.
The best way to find an angel investor is a solid introduction from a colleague or friend of an angel. The use of LinkedIn to ascertain connections can prove useful.
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