| Business angels are individuals who have the ability | | | | recommended by a respected third party. |
| and willingness to provide your company with enough | | | | What's the difference between angels and venture |
| capital to move your startup businesses to the next | | | | capital? |
| phase. Angels are primarily local people who are, | | | | The primary difference between angles and venture |
| relatively speaking, financially independent, but who | | | | capital is that Venture Capitalists use someone elses' |
| are by no means super rich. These investors are | | | | money and Angels risk their own. The venture capital |
| usually first generation money-entrepreneurs, retired | | | | industry consists of firms staffed by professional |
| corporate executives, or professionals who have a | | | | money managers that are funded by insurance |
| net worth of more than $1 million and an annual | | | | companies, major corporations, pension funds, |
| income of more than $100,000. In the United States | | | | foundations and the government. These money |
| there are over 2 million households with a net worth | | | | managers have a responsibility to their funding |
| of $1 million, and 90 percent of them made their | | | | sources, due to this responsibility; they take only the |
| fortunes by starting their own businesses. Angels are | | | | most cautious of risks. The venture community |
| self-starters who are trying to help perpetuate a | | | | includes firms, subsidiaries of banks, subsidiaries of |
| system that made them successful in first place and, | | | | major corporations, small business investment |
| at the same time, make a considerable return on | | | | companies (SBICs), and the Minority Enterprise Small |
| their money. A lot of angels don't advance money; in | | | | Business Investment Companies (MSBIC). |
| many cases, they will co-sign loans with the | | | | In the mid-1980s, the venture capital industry hit its |
| entrepreneur. | | | | climax. Then, because of heavy competition in lost |
| Angels are all around us. On average, there are | | | | profits due to imprudent investment practices, many |
| approximately one million investors in the U.S. who | | | | of the smaller venture capital firms went under, |
| invest equity capital into business opportunities each | | | | shaking market confidence. Venture capital funds |
| year. They are doctors, dentists, lawyers, | | | | raised dropped from $4.2 billion in 1987 to $1.2 billion in |
| accountants, managers, business associates, friends, | | | | 1991. The total number of venture capital firms in the |
| and relatives. Business angels are ordinary people who | | | | U.S. has dropped to fewer than 1000, and these |
| know how to investigate a company and want to | | | | firms fund only about 2000 businesses each year. |
| invest a little money into its long-term development | | | | Most of those businesses have been later stage |
| and growth. They are willing to assume more risks in | | | | deals; two-thirds of investments are made in bigger |
| financing a company than most banks because they | | | | companies, where the return is high and the risk is |
| have a personal interest in the company itself. Angels | | | | low. Few investment bankers deal in early stage or |
| typically take a more active role in the company than | | | | developmental companies. Usually less than 250 |
| do Direct Public Offering investors, who might find | | | | start-up companies nationwide receive venture capital |
| you through the Internet or by other means. They | | | | funding each year. The obvious reason is that it |
| may want a recognized input into the decision-making | | | | takes a venture capitalist just as much time, if not |
| and management of your company, particularly if | | | | more time, to evaluate a small company as it does a |
| they have made a substantial investment in your | | | | larger one. These statistics prove that angels are |
| company. | | | | often the only source of seed capital for many |
| Angels look for a business that shows promise to | | | | startups. Angels invest over $27 billion each year, |
| grow. Angels are closer to venture capitalists than | | | | with nearly 50 percent going to early stage |
| they are to passive investors. They are not totally | | | | businesses. |
| concerned with the profitability at this point in the | | | | Not only do angels invest earlier than venture |
| game. They prefer to invest in a company that has | | | | capitalists, but they also invest in smaller deals. They |
| some proprietary lock on the market, some | | | | are the primary source of funding when the size is |
| competitive edge related to location, technology, | | | | under $1 million. Only 31 percent of traditional venture |
| distribution method, market access, or personal and | | | | capital goes into offerings under $1 million; only 13 |
| business relationships-a company that has 100% of a | | | | percent of venture capital money goes to offerings |
| emerging market, a market that has yet to be | | | | under $500,000. Angels, on the other hand, invest |
| tapped. | | | | quite frequently in these types of deals. About 90 |
| Angels base their investment decisions on a different | | | | percent of angel money isinvested in offerings under |
| set of criteria than most investors. The geographic | | | | $1,000,000, and 82 percent of that money is |
| proximity of the firm may be important influence, | | | | invested in offerings that are under $500,000. |
| since most Angels prefer to invest within 50-100 | | | | The pool of today's angel capital is five times the |
| miles of their homes. Angels often invest in fields | | | | amount of institutional venture capital, providing |
| they may have specialized in or have personal | | | | money to 20 to 30 times as many companies. Angels |
| knowledge about, so they can contribute their | | | | invest nearly $30 billion of the $3-6 billion venture |
| expertise as well as their money. They may invest in | | | | capitalists invest each year. Angels fund 100,000 |
| a company because they are personally familiar with | | | | companies each year, while venture capitalist fund |
| the entrepreneur, or because they are were | | | | only about 2000. |