Angel Investing
Market Conditions |
Funding Gap
Angel Investing Groups
Angel investing has long been an important source of financial support and mentoring for new and
growing businesses bridging the gap between individual (friends and family) and institutional venture
capital rounds of financing. Research indicates that angel investors provide close to 80% of the seed and
start-up capital for high tech entrepreneurial ventures (Sohl, Van Osnabrugge and Robinson 2001). Over
the past several years, this sector of the private capital market has been formalizing in response to both
growing demands and complexity.
There were approximately 50 formal business angel groups in the United States five years ago. Today
estimates are that there are as many as 170 formal and informal organizations located throughout leading
technology and business regions in the US and Canada. These groups have several characteristics:
loosely to well-defined legal structures; part-time or full-time management; standardized investment
processes; a public face usually with a Web site and public relations activities; and, occasionally a
traditionally structured venture capital/angel investing fund.
The number of organized groups has grown in response to several factors:
- A desire to attract better deals and generate higher returns than angels acting alone;
- The growth of venture capital funds and the attraction of venture investing;
- A widening “capital gap” between individual and institutional venture capital investors that has created a need and an opportunity for pooled investments;
- The legal and economic complexity of these investments;
- A large increase in the number of self-made, high net worth individuals who want to be more involved in their alternative asset management;
- The volume of deal flow; and,
- Social camaraderie among investors.
For entrepreneurs and other investors, the net results of this change are mostly positive. Although the
models of business angel groups continue to evolve, these groups are generally better financed than ad
hoc groups of individual investors. These groups provide an extended network that benefits both funded
companies and co-investors by providing greater due diligence, operational support and domain
expertise. Business angel groups can also provide a key source of qualified deal flow for venture firms; as
well as provide intermediate capital for companies with financing requirement levels between individual
investors and institutional venture capital.
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