- Describe angel investors and how they finance entrepreneurs


[SLIDE 1]

In the past, an "angel" in the context of investment was used to describe wealthy people who invested in Broadway theatrical productions. Over the years, the term "angel" has evolved to mean anyone who uses personal capital to invest in an entrepreneurial venture. Angels are eligible to invest as long as they are accredited investors, which is anyone who earns an income over $200,000 or has a net worth of over $1 million. Apple, Google, and Netscape are just a few well-known companies that have benefited from angel funding in the early stages. 

We may tend to think of angels as motivated by a pure spirit of goodness so it's important to remember that the primary reason why an angel (or anyone else, for that matter) chooses to invest is to earn money. However, angel investment is not only about the money. Often experienced self-made entrepreneurs themselves, angel investors can add significant value by providing advice, skills, and expertise, as well as lucrative contacts. They typically enjoy the experience of mentoring others and the personal fulfilment of nurturing a new business and watching it grow. It is generally thought that the typical amount invested by angels can range from $25,000 to $100,000. Angel investors usually look for opportunities in young startups that can be expected to return 10 times their investment in five years.


[SLIDE 2]

Angels used to be a notoriously elusive group but thanks to sites like AngelList, today it is much easier to find a business angel. There are still some angels who will accept only referrals, but most angels will consider unsolicited submissions of ideas. Angels receive many unsolicited ideas every day, but having a professional vouch for you is always a good start. 

When looking for an angel, it is always best to start with whom you know. Tap your network and think about who could provide you with an introduction to an angel. For example, Steve Jobs was introduced to his business angel through another investor, and Google's Sergey Brin and Larry Page found their angel through a faculty member at Stanford University. Among those who can provide you with referrals to angels are attorneys, other entrepreneurs, work colleagues, university faculty, VCs, and investment bankers. 


[SLIDE 3]

There are five main types of business angels with different motivations and objectives: entrepreneurial, corporate, professional, enthusiast, and micromanagement. Let's take a look at each of these. 

Entrepreneurial angels are entrepreneurs who have already successfully started and operated their own businesses, which they may or may not still be running. Either way, they generally have a steady flow of income that allows them to take higher investment risks. Entrepreneurial angels are the most valuable to early ventures -- not only are they knowledgeable about the industries in which they invest, but because of their personal experience, they are in a great position to advise and mentor entrepreneurs. 

Professional angels are doctors, lawyers, dentists, accountants, consultants, and the like, who use their savings and income to invest in entrepreneurial ventures. For the most part, they are silent investors but some of them (the consultants, for example) may wish to be taken on by the company as paid advisers. 

Enthusiast angels are independently wealthy retired or semiretired entrepreneurs or executives who often invest their personal capital in startups as a hobby. They tend to invest in several different companies and rarely take a role in active management. 

Micromanagement angels are entrepreneurs who have achieved success through their own companies and want to be involved in the ventures they invest in. Many micromanagement angels demand directorship or a position on the board of advisors and expect regular updates on the running of the company. They will intervene in the running of the business if it does not perform to their expectations. 


[SLIDE 4]

Regardless of the motivations of the business angel, most will be looking to invest in an entrepreneurial venture headed by someone who is passionate, committed, and genuine. They will also want to know your level of expertise in your chosen area of business, the extent of the market opportunity for your product or service, the estimated valuation of your business, the current state of your finances, and your expenses and projections for the future. 

There are several reasons business angels will reject a pitch, some of which will be beyond your control. For example, sometimes business angels will reject a pitch for geographical reasons. In fact, most angels like to invest locally. Unless you are willing to move your company to their locale, then there's not much you can do in this instance. Another reason for rejection is that the angel does not operate in the same sector as you do. This is why researching the most appropriate angel for your business is paramount before you get in touch. 

Angels might also reject approaches that do not come via a trusted referral, so make sure to use your resources to find the right way to connect. 

Angels will also reject entrepreneurs who do not come across as knowledgeable or passionate. They may decline to invest in a project because they believe the market is too small, the financial projections exaggerated/not believable, or there is very little need for your product or service at all. It is useful to review these reasons for rejection when you are preparing to meet with an angel investor, so that you can come prepared with excellent arguments that will convince him or her that your business is worth a shot. 


[SLIDE 5]

In recent years, angel investors have begun to form into groups in order to share their knowledge and collaborate to find startups to invest in. These angel groups are spread all over the country and tend to specialize in specific areas. For example, Golden Seeds focuses solely on women-led startups, while Tech Coast Angels looks for technology startups in particular. 

Women-led angel funds such as Belle Capital, Golden Seeds, and the Texas Women Ventures fund are doing much to increase the visibility of women angels by showing the amount of value they can add to entrepreneurial ventures. 

In stark contrast to the rise in women angels, there are very few minority business angels (defined as African American, Hispanic, Asian, or Native American), accounting for just 4.5% of the angel population. In an effort to address this imbalance, groups like TiE Angels, a South Asian funding community, have been set up for entrepreneurs seeking a minority investor.