What is an Angel Investor?
Angel investors are wealthy individuals who invest in high risk, early stage ventures by reserving a portion of their total investment portfolios to provide emerging companies with seed and startup capital through direct, private investments. Their goal is to achieve higher returns than the typical public markets provide. Most angels are active investors – who contribute their time and experience, as well as offer introductions to valuable contacts essential to the company’s success – because they enjoy the thrill of helping entrepreneurs grow their businesses. To maximize the value added, most angels specialize in industries or technologies they understand, and invest only in companies within close geographic proximity.
MIT’s Entrepreneurship Center identifies four types of angel investors:
Bring both entrepreneurial and industry expertise. Many have been successful entrepreneurs in the same sector as the new companies in which they invest.
Offer industry expertise – often from experience working for large, established companies – but may lack first-hand experience with the travails of a startup.
What is an Angel Group?
Angel investor groups vary in structure, from formal to informal. Formal groups follow strict participation requirements that guide members’ minimum investment activity and event attendance. Some groups pool members’ capital to make investments on the group’s behalf, while others allow individual members to invest in specific deals of interest.
A typical angel group’s investment ranges widely from $100,000 to $750,000 per deal, depending on how many group members are interested in the deal. However, because of the increasing focus of venture firms and other sources of private capital on larger, later stage deals, the angel capital sector is raising the scale of its investments. Two strategies employed for this purpose are the “sidecar” investment fund, which may (or may not) invest in every network deal or in deals meeting a certain size or other criterion, and deal syndication, in which two or more angel groups bring members’ resources together for a single investment. The Long Island Angel Network, which has cordial relations with New York Angels, New Jersey Jumpstart and the New York Angel Network, is actively exploring both of these strategies to address the capital needs of emerging Long Island companies.
While no two angel groups operate exactly alike, most angel groups maintain a local or regional geographic focus in order to maximize members’ ability to actively engage in the growth of their investments. Most angel groups have web sites that provide directions for business plan submission. After screening business plans for top-quality deals that match the group’s criteria, these groups typically organize regular breakfast, dinner or other meetings for members to hear pitches from companies selected to present. If the group (or members of the group) decides to proceed, interested members commonly collaborate on due diligence and deal negotiation. Based on the group’s structure, investments are either made directly by individual members, as is the case for the Long Island Angel Network, or by the group as a whole. Most groups apply standard terms to their investments, with some flexibility to negotiate.