Business “angels” are high net worth individual investors who seek high returns through private investments in start-up companies. Private investors generally are a diverse and dispersed population who made their wealth through a variety of sources. But the typical business angels are often former entrepreneurs or executives who cashed out and retired early from ventures that they started and grew into successful businesses.
These self-made investors share many common characteristics:
- They seek companies with high growth potentials, strong management teams, and solid business plans to aid the angels in assessing the company’s value. (Many seed or start ups may not have a fully developed management team, but have identified key positions.)
- They typically invest in ventures involved in industries or technologies with which they are personally familiar.
- They often co-invest with trusted friends and business associates. In these situations, there is usually one influential lead investor (“archangel”) those judgments is trusted by the rest of the group of angels.
- Because of their business experience, many angels invest more than their money. They also seek active involvement in the business, such as consulting and mentoring the entrepreneur. They often take bigger risks or accept lower rewards when they are attracted to the non-financial characteristics of an entrepreneur’s proposal.
Angel investors might be professionals such as doctors or lawyers, former business associates — or better yet, seasoned entrepreneurs interested in helping out the next generation. What matters is that they are wealthy and willing to invest hundreds of thousands of dollars in your business in return for a piece of the action.
Generally, the angels need to meet the Securities Exchange Commission’s (SEC) definition of accredited investors. They each need to have a net worth of at least $1 million and make $200,000 a year (or $300,000 a year jointly with a spouse).
Angel investors give you money. You sell them equity in the company, filing the investment raise with the SEC. Angel investments commonly run around $600,000. Most investments rounds also involve multiple investors, thanks to the proliferations of angel groups.
Angel investments can be perfect for businesses that are established enough that they are beyond the startup phase, but are still early enough in the game that they need capital to develop a product or fund a marketing strategy.
Many businesses receiving angel investments already have some revenue, but they need some cash to kick the enterprise to the next level. Not only can an angel investor provide this, but also he or she might become an important mentor. Because their money is on the line, they will be highly motivated to see your business succeed.
The downside, you could be giving away anywhere from 10 to more than 50 percent of your business. On top of that, there is always the risk that your investors will decide that you are the business’ greatest obstacle to success, and you could get fired from the company you created.
Angel investors, like venture capitalists, also like to see an end game down the road that will allow them to pocket their winnings, whether it is a public offering or your business getting acquired by another company. You might have to give up running your enterprise before you are done having fun with it.
The Overland, Kan.-based Angel Capital Association (ACA) has an online listing of angel groups that are members in good standing, as well as organizations affiliated with the ACA.
Find below a list of business angels in the United States.
BUSINESS ANGELS LIST (PDF)