Angel investors have become a key force supplying startup and early-stage capital to promising young companies. In 2007, the Center for Venture Research estimates that angels invested $26 billion in about 58,000 businesses. But that figure dipped about 10 percent in 2008, and will likely drop more in 2009. Still, angel investors are actively looking for promising ventures to back.
Keep in mind that angel investors and venture capital firms are different. Angels invest mostly in startup and early-stage businesses. Venture capitalists provide growth capital for businesses further along. While venture capitalist and angels invest roughly the same amounts ($20-$30 billion annually), angels parse that out to more than 50,000 businesses, while venture capitalist investors back less than 4,000 companies. And angels invest their own money, while venture capitalists frequently invest money put up by others.
In the current economy, many angels have seen the value of their personal assets plunge, putting a crimp in their ability to make new investments. Many have their hands full mentoring the companies they have already put money in.
The good news for capital-seeking entrepreneurs is this: Locating angel groups, learning how they work, what types of startups they are interested in and finding out the exact process for how they can be approach, have become easier thanks to two allied organizations: the Angel Capital Association (ACE) and the Angel Capital Education Foundation (ACEF).
Start at AngelCapitalEducation.org, the ACEF Web site. ACEF does not make investments, but rather provides information and links to support the process. Go to the “For Entrepreneurs” section under the “Resources” tab. Here you will find out:
• If your type of business is right for an angel-group investment.
• When to approach an angel group.
• What criteria angel groups use to select entrepreneurs to back.
• What process you can expect to apply for group funding.
• Whether you should expect to pay fees to participate.
The investment process has numerous steps, including an initial application, prescreening, screening, investment meeting, due diligence and, finally, a term sheet offering if you make it all the way through. About one in three angel groups charges a fee to present your idea. For those groups that do charge, the average application fee is about $150 and the average presentation fee is $500. •
Daniel Kehrer can be reached at
editor@business.com.
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