Angel investors are people who have the money to help start ups. This help comes at a high cost in that the angel typically takes a stake or ownership position in the start up in the form of equity or stock ownership. For the angel investor, the investment is more than just a pure investment; often the angel has some connection with the start up and wants to be involved in the business.
Sometimes angel investors will band together with other like investors to form an angel network. This can bring more deal flow to the investor and help with the due diligence process, which is a fancy term for trying to figure out if the investment is worth the time and money to the angel.
Most investments made by angel investors are between $1Milllion and $2Million dollars. Smaller amounts will typically come from friends and family. Thus, it is common for the angel to invest as a second round or later stage investor once the business model is proven.
Angel investors want to make money. A common rule of thumb for angel investors is to consider investments which can offer a minimum 7 times return in 7 years. In fact, many angel investors only seek investment opportunities with a potential ROI of 15-20 times in 5 years—this high return on investment expectation will eliminate many start ups from an angel investor’s portfolio.
A savvy angel investor can bring many things to the start up beyond money. Often the angel investor brings experience and connections that the entrepreneur does not have. While these contributions are valuable, the angel money is very expensive. Beware.
John Bradley Jackson
© Copyright 2009 All rights reserved.
Our sources are telling us that angel investors are softening their expectations for new investments right now. Seems that they are looking for a more solid return, rather than a huge home run.
Jon,
Good feedback.
The economy impacts everyone—even angel investors. It makes sense that the home run mindset might be replaced by more conservative investments.
JJ