Angel investor

An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors invest online through equity crowdfunding or organize themselves into angel groups or angel networks to share investment capital, as well as to provide advice to their portfolio companies.[1]

Etymology and origin

The application of the term "angel" to a kind of investor originally comes from Broadway theater, where it was used to describe wealthy individuals who provided money for theatrical productions that would otherwise have had to shut down. In 1978, William Wetzel, then a professor at the University of New Hampshire and founder of its Center for Venture Research, completed a pioneering study on how entrepreneurs raised seed capital in the USA, and he began using the term "angel" to describe the investors who supported them. A similar term, "patron," is commonly used in arts.

Angel investors are often retired entrepreneurs or executives, who may be interested in angel investing for reasons that go beyond pure monetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a less than full-time basis. Because innovations tend to be produced by outsiders and founders in startups, rather than existing organizations, angel investors provide, in addition to funds, feedback, advice and contacts. Because there are no public exchanges listing their securities, private companies meet angel investors in several ways, including referrals from the investors' trusted sources and other business contacts; at investor conferences and symposia; and at meetings organized by groups of angels where companies pitch directly to investor in face-to-face meetings.

According to the Center for Venture Research, there were 258,000 active angel investors in the U.S. in 2007.[2] According to literature reviewed by the US Small Business Administration, the number of individuals in the US who made an angel investment between 2001 and 2003 is between 300,000 and 600,000.[3] Beginning in the late 1980s, angels started to coalesce into informal groups with the goal of sharing deal flow and due diligence work, and pooling their funds to make larger investments. Angel groups are generally local organizations made up of 10 to 150 accredited investors interested in early-stage investing. In 1996 there were about 10 angel groups in the United States. There were over 200 as of 2006.[4]

The past few years, particularly in North America, have seen the emergence of networks of angel groups, through which companies that apply for funding to one group are then brought before other groups to raise additional capital.

Source and extent of funding

Angels typically invest their own funds, unlike venture capitalists who manage the pooled money of others in a professionally managed fund.[5][6] Although typically reflecting the investment judgment of an individual, the actual entity that provides the funding may be a trust, business, limited liability company, investment fund, or other vehicle. A Harvard report[7] by William R. Kerr, Josh Lerner, and Antoinette Schoar provides evidence that angel-funded startups are more likely to succeed than companies that rely on other forms of initial financing. The paper by Kerr et al., found "that angel funding is positively correlated with higher survival, additional fundraising outside the angel group, and faster growth measured through growth in web site traffic".

Angel capital fills the gap in seed funding between "friends and family"[8] and more robust start-up financing through formal venture capital. Although it is usually difficult to raise more than a few hundred thousand dollars from friends and family, most traditional venture capital funds are usually not able to make or evaluate small investments under US$1–2 million.[9] Thus, angel investment is a common second round of financing for high-growth start-ups, and accounts in total for almost as much money invested annually as all venture capital funds combined, but into more than 60 times as many companies (US$20.1 billion vs. $23.26 billion in the US in 2010, into 61,900 companies vs. 1,012 companies).[10][11]

There is no "set amount" for angel investors, and the range can go anywhere from a few thousand to a few million dollars. In a large shift from 2009, in 2010 healthcare/medical accounted for the largest share of angel investments, with 30% of total angel investments (vs. 17% in 2009), followed by software (16% vs. 19% in 2007), biotech (15% vs. 8% in 2009), industrial/energy (8% vs. 17% in 2009), retail (5% vs. 8% in 2009) and IT services (5%).[10][12] While more readily available than venture financing, angel investment is still extremely difficult to raise.[13] However some new models are developing that are trying to make this easier.[14]

Much like other forms of private equity, the investment decision-making has been shown to suffer from cognitive biases such as illusion of control and overconfidence[15].

Investment profile

Angel investments bear extremely high risks[16] and are usually subject to dilution from future investment rounds. As such, they require a very high return on investment. Because a large percentage of angel investments are lost completely when early stage companies fail, professional angel investors seek investments that have the potential to return at least ten or more times their original investment within 5 years, through a defined exit strategy, such as plans for an initial public offering or an acquisition. Current 'best practices' suggest that angels might do better setting their sights even higher, looking for companies that will have at least the potential to provide a 20x-30x return over a five- to seven-year holding period. After taking into account the need to cover failed investments and the multi-year holding time for even the successful ones, however, the actual effective internal rate of return for a typical successful portfolio of angel investments is, in reality, typically as 'low' as 20–30%. While the investor's need for high rates of return on any given investment can thus make angel financing an expensive source of funds, cheaper sources of capital, such as bank financing, are usually not available for most early-stage ventures.

Geographical differences

Canada

According to the Business Development Bank of Canada, there are 20,000-50,000 angels in Canada.[17] Over 3000 are members of 35 angel groups that belong to the National Angel Capital Organization (NACO).[18]

China

Prior to 2000, it was difficult for startups in China to find local angel investors. Entrepreneurs such as Jack Ma of Alibaba Group needed to raise funds from Softbank, Goldman Sachs, Fidelity and other institutions.[19] However, by 2015 several Chinese Angel groups were in operation.[20]

Russia

In 2012, the International Business Angels Assembly[21] took place in the Russian Federation. This was an exclusive event devoted to private investing into innovative projects in Eastern Europe.[22]

United Kingdom

A study by NESTA[23] in 2009 estimated that there were between 4,000 and 6,000 angel investors in the UK with an average investment size of £42,000 per investment. Furthermore, each angel investor on average acquired 8 percent of the venture in the deal with 10 percent of investments accounting for more than 20 percent of the venture.

In terms of returns, 35 percent of investments produced returns of between one and five times of the initial investment, whilst 9 percent produced returns of multiples of ten times or more. The mean return, however, was 2.2 times investment in 3.6 years and an approximate internal rate of return of 22 percent gross.

The UK Business Angel market grew in 2009/2010 and, despite recessionary concerns, continues to show signs of growth.[24][25] In 2013, this dynamic kept going on in the UK as angel investors were named by two-thirds of technology entrepreneurs as a means of funding.[26] By 2015, angel investments had increased throughout the UK, with the average number of investments made by angels at 5, compared to 2.5 in 2009. The same report also found an increase in angel investors making impact investments, with 25% of angels saying they had made an impact investment in 2014.[27]

United States

Geographically, Silicon Valley dominates United States angel investing, receiving 39% of the $7.5B invested in US-based companies throughout Q2 2011, 3–4 times as much as the total amount invested within New England.[11] Total investments in 2011 were $22.5 billion,an increase of 12.1 percent over 2010 when investments totalled $20.1 billion.[28] In the United States, angels are generally accredited investors in order to comply with current SEC regulations, although the JOBS Act of 2012 loosened those requirements starting in January 2013. Reaching nearly $23 billion in 2012 in the US, angel investors are not only responsible for funding over 67,000 startup ventures annually, but their capital also contributed to job growth by helping to finance 274,800 new jobs in 2012.[29] In 2013, 41% of tech sector executives name angel investors as a means of funding.[26]

See also

References

  1. ^ "A Guide to Angel Investors". Entrepreneur. 2010-08-17.
  2. ^ "Center for Ventura Research: The Angel Investor Market in 2007: Mixed Signs of Growth" (PDF). Unh.edu. Retrieved 2012-12-01.
  3. ^ "The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures" (PDF). Sba.gov. Retrieved 2012-12-01.
  4. ^ Lee, Jeanne (May 31, 2006). "How to fund other startups (and get rich)". CNN Money. Retrieved 2012-12-01.
  5. ^ Joe Hadzima. "All Financing Sources Are Not Equal". Boston Business Journal.
  6. ^ "National Venture Capital Association". Nvca.org. 2012-11-20. Archived from the original on 2012-07-29. Retrieved 2012-12-01.
  7. ^ William R. Kerr; Josh Lerner; Antoinette Scholar (2010-04-15). "The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis – HBS Working Knowledge". Hbswk.hbs.edu. Retrieved 2012-12-01.
  8. ^ Loewen, Jacoline (2008). Money Magnet: Attract Investors to Your Business: John Wiley & Sons. ISBN 978-0-470-15575-2.
  9. ^ Ács, Zoltán J.; Audretsch, David B. (2003). Handbook of Entrepreneurship Research: An Interdisciplinary Survey and ... – Zoltán J. Ács, David B. Audretsch – Google Books. ISBN 9781402073588. Retrieved 2012-12-01.
  10. ^ a b Sohl, Jeffrey (2011-04-12). "Full Year 2010 Angel Market Trends" (PDF). Wsbe.unh.edu. Archived from the original (PDF) on 2011-12-16. Retrieved 2011-09-27.
  11. ^ a b "Historical Trend Data, Select Financing Sequence – 1". The Money Tree Report. Pwcmoneytree.com. 2011. Retrieved 2011-09-27.
  12. ^ Sohl, Jeffrey (2010-03-31). "Full Year 2009 Angel Market Trends" (PDF). Wsbe.unh.edu. Archived from the original (PDF) on 2013-01-20. Retrieved 2011-09-27.
  13. ^ "Entrepreneur FAQ". California Investment Network. Retrieved 2011-09-27. Angels are also extremely discerning in the projects that they will invest in (rejecting, on average, approximately 97% of the proposals submitted to them).
  14. ^ Prentice, Claire (2010-05-12). "Cash-strapped entrepreneurs get creative". BBC News. Retrieved 2012-12-01.
  15. ^ Zhang, Stephen X.; Cueto, Javier (2015-11-09). "The Study of Bias in Entrepreneurship". Entrepreneurship Theory and Practice. 41 (3): 419–454. doi:10.1111/etap.12212. ISSN 1042-2587.
  16. ^ Rachleff, Andy. "Why Angel Investors Don't Make Money … And Advice For People Who Are Going To Become Angels Anyway". Techcrunch. Retrieved 30 September 2012.
  17. ^ "Angel investors: How to find them". www.bdc.ca. BDC/NACO.
  18. ^ "Angel Activity Report 2016". www.nacocanada.com. Retrieved 25 March 2018.
  19. ^ "Company Overview". Retrieved 24 January 2014.
  20. ^ "With stocks' stellar growth over, startups gain favor". cnbc. 2015-11-09. Retrieved 2016-08-29.
  21. ^ "International Business Angels Assembly". Retrieved 2012-12-01.
  22. ^ "MARCHMONT Innovantional News". Retrieved 2012-12-01.
  23. ^ R.E. Wiltbank. "Siding with the angels: Business angel investing – promising outcomes and effective strategies".
  24. ^ "The UK Business Angel market for 2009/10". Venture Giant. Retrieved 2012-12-01.
  25. ^ "Annual Report on the Business Angel Market in the United Kingdom: 2009/10". Bis.gov.uk. Retrieved 2012-12-01.
  26. ^ a b Alex Hern (2014-07-23). "Angel investors and government grants dominate British tech investment". the Guardian.
  27. ^ "UKBAA Report 2015 Main Findings". UK Business Angels. Retrieved 2015-07-07.
  28. ^ "UNH Center for Venture Research: Angel Investor Market on Solid Path of Recovery in 2011" (PDF). Wsbe.unh.edu. Archived from the original (PDF) on 2012-12-24. Retrieved 2012-12-01.
  29. ^ "What Angel Investors Know About Startup Investing That You Don't" (PDF). RockThePost. Retrieved 2013-09-01.
Andrew McCollum

Andrew McCollum (born September 4, 1983) is a co-founder of Facebook and an angel investor.

Darian Shirazi

Darian Shirazi (Persian: داریان شیرازی‎, born December 23, 1986) is an engineer, entrepreneur, angel investor, and founder of Radius. At age 19, he became the first intern hired by Facebook.Darian is related to Dara and Hassan Khosrowshahi.

Dave McClure

Dave McClure is an entrepreneur and angel investor based in the San Francisco Bay Area, who founded the business accelerator 500 Startups, serving as CEO until his resignation in 2017.

Eduardo Saverin

Eduardo Luiz Saverin (; Portuguese: [eduˈaɾdu luˈis ˈsaveɾĩ]; born March 19, 1982) is a Brazilian-born entrepreneur and angel investor. Saverin is one of the co-founders of Facebook. In 2012, he owned 53 million Facebook shares (approximately 2% of all outstanding shares), valued at approximately $2 billion at the time. He also invested in early-stage startups such as Qwiki and Jumio.Saverin renounced his U.S. citizenship in September 2011, and therefore avoided an estimated $700 million in capital gains taxes; this generated some media attention and controversy. Saverin stated that he renounced his citizenship because of his "interest in working and living in Singapore" where he has been since 2009, and denied that he left the U.S. to avoid paying taxes.

Fred Seibert

Frederick 'Fred' Seibert (born September 15, 1951) is an American serial entrepreneur and a moving pictures producer. He founded Frederator Networks, Inc. and Frederator Studios. Seibert has held leading positions with MTV Networks, Hanna-Barbera, and Next New Networks, and is an angel investor in several technology and media start-ups. He has produced live action and animated programs for cable television, and the internet, and began his professional career as a jazz and blues record producer.

Gil Penchina

Gil Penchina is an American business manager. He was formerly the CEO of Wikia Inc., and the vice president and general manager, international at eBay.He is a 1997 alumnus of the Kellogg School of Management at Northwestern University and the University of Massachusetts Amherst.

Gil Penchina is also well known for his business angel investments. He founded the angel investor syndicate Flight VC on AngelList and has invested in companies like PayPal, LinkedIn, Ripple, and many others.

Greg Yaitanes

Gregory Charles Yaitanes (born June 18, 1970) is an American television and film director. He is also an angel investor in Twitter.Yaitanes has directed and produced shows including Damages, Lost, Prison Break, Heroes and Grey's Anatomy. His Emmy Award came in 2008 as result of his work on House, M.D..

Yaitanes grew up in Wellesley, Massachusetts, where he directed his very first film, Salad Bar: The Movie. At the age of 18, Yaitanes moved to Los Angeles and attended the University of Southern California Film School. By 23, he landed his first directorial job.

Yaitanes is one of Twitter's original investors and a frequent guest speaker at the company.

Active in the Greek community, Yaitanes helped produce Greek America Foundation's Gabby Awards and directed the opening of the 2011 Gabby Awards on Ellis Island.

Yaitanes resides between New York and Los Angeles and has two boys.

Jane Zhang (investor)

Jane Zhang is an entrepreneur and a Chinese angel investor from Shanghai. She was an early investor of UT Starcom, Alibaba and VIPS.

Jason Calacanis

Jason McCabe Calacanis (born November 28, 1970) is an American Internet entrepreneur, angel investor, author and blogger. His first company was part of the dot-com era in New York, and his second venture, Weblogs, Inc., a publishing company that he co-founded together with Brian Alvey, capitalized on the growth of blogs before being sold to AOL. As well as being an angel investor in various technology startups,

Calacanis also presents at industry conferences worldwide.

Jay Gould (entrepreneur)

Jay Gould (born April 1, 1979) is an American tech entrepreneur and the founder & CEO of Yashi. Gould is also an active angel investor, and has backed web-based startups including DogVacay, Tout, Buffer, and Fitocracy.

John May (angel investor)

John May is an American venture capitalist, the Managing Partner of the New Vantage Group, which has organized five angel investing organizations in the Washington, D.C. area since 1999, placing funds into more than 50 companies.

Mike Markkula

Armas Clifford "Mike" Markkula Jr. (; born February 11, 1942) is an American businessman and investor. He was an angel investor and second CEO of Apple Computer, Inc., providing early critical funding and managerial support.

Markkula was introduced to Steve Jobs and Steve Wozniak when they were looking for funding to manufacture the Apple II personal computer they had developed, after having sold some units of the first version of this computer, the Apple I. With his guidance and funding, Apple ceased to be a partnership and was incorporated as a company.

Dermot Mulroney portrayed him in the 2013 film Jobs and Jeffrey Nordling portrayed him in the 1999 TNT film, Pirates of Silicon Valley.

OpenLearning

OpenLearning is a for-profit educational technology institution based in Australia that offers a social online learning platform that can deliver massive open online courses (MOOCs).

OpenLearning has worked with the University of New South Wales and Taylor's University to deliver the first MOOCs in Australia and Malaysia respectively.In December 2013, OpenLearning launched a cloud based software product for companies to create private educational portals on its platform.In February 2015, OpenLearning raised $1.7 million in funding led by angel investor Clive Mayhew. ASX-listed ICS Global, Robin and Susan Yandle, and Hideaki Fukutake, the director of Japanese education company Benesse Holdings.In June 2015, the Australian Federal Government announced it would be getting its first MOOC delivered by Open Learning.

PJ Media

PJ Media (originally known as Pajamas Media) is an American conservative opinion and commentary collaborative blog that was founded in 2004. Its majority owner is technology entrepreneur, billionaire, and angel investor Aubrey Chernick.PJ Media also operated the online television and video network PJTV, which ceased to exist on May 11, 2016.

Semyon Dukach

Semyon Dukach (born 25 October 1968) is the Founding Partner of One Way Ventures,

a venture capital fund that backs immigrant entrepreneurs.

He is also known as the former Managing Director of Techstars in Boston, a top angel investor, the former Chairman of SMTP (company) (NASDAQ: SHSP), and a former professional blackjack player with the MIT Blackjack Team. He played with Strategic Investments and later was one of the founding members and team leaders on Amphibian Investments whose exploits were chronicled in Ben Mezrich's Busting Vegas and referred to in Mezrich's Bringing Down the House. Dukach was the main character in Busting Vegas and the only member of the MIT blackjack team to be referred to by his real name in either book.

Teleo

Teleo was a peer-to-peer Voice over Internet Protocol (VoIP) network founded in by Wendell Brown, Andy Moeck and Craig Taro Gold in 2005.

Teleo was an early competitor to Skype. The San-Francisco-based company's VoIP system enabled desktop and laptop PC users to send and receive phone calls over the Internet. Users could speak to other Teleo users for free, call traditional telephone numbers for a fee, and receive calls from traditional phones.Teleo provided internet telephony applications that bridged the gap between computer desktops, land line phones, and cell phones. Teleo's software allowed users to place and receive phone calls from Microsoft Outlook, Internet Explorer, and other applications.

Teleo users could place free PC-to-PC calls to other Teleo users worldwide; calls from regular telephones were also free. Calls to regular telephones were "pay as you go," at a 2-cent-per-minute rate worldwide. Users could avoid fees by encouraging friends and business associates to install Teleo.

Angel investor Chris Morgando was brought on as an advisor to Teleo in March 2005, and Peter Sisson was added as chief executive officer in June 2005. Teleo was acquired by Microsoft in August 2005, and became part of Microsoft's MSN group in 2006.

Tim Ferriss

Timothy Ferriss (born July 20, 1977) is an American podcaster, author, entrepreneur and early-stage tech startup investor. Tim Ferriss has penned several books including The 4-Hour Workweek which is a NYT Bestselling business book. Tim Ferriss hosts a podcast called The Tim Ferriss Show, which has exceeded 300 million downloads.

He has written a number of self-help books on the "4-hour" theme, some of which have appeared on the New York Times, Wall Street Journal, and USA Today bestseller lists, including The 4-Hour Body.Ferriss is also an angel investor and advisor to Facebook, Twitter, StumbleUpon, Evernote, and Uber, among other companies.

Tony Fadell

Anthony Michael "Tony" Fadell (born March 22, 1969) is an American engineer, inventor, designer, entrepreneur, and angel investor. He served as the Senior Vice President of the iPod division at Apple Inc., from March 2006 to November 2008 and is known as "one of the fathers of the iPod" for his work on the first generations of Apple's music player. In May 2010, he founded Nest Labs, which announced its first product, the Nest Learning Thermostat, in October 2011. Nest was acquired by Google in January 2014 for $3.2B. Since early 2015 he led the Google Glass division, until his resignation in June 2016.

Yammer

Yammer (/ˈjæm.ər/ ) is a freemium enterprise social networking service used for private communication within organizations. Access to a Yammer network is determined by a user's Internet domain so that only individuals with approved email addresses may join their respective networks.The service began as an internal communication system for the genealogy website Geni.com, and was launched as an independent product in 2008. Microsoft later acquired Yammer in 2012 for US$1.2 billion.India==History==

On September 8, 2008, Yammer was launched at the TechCrunch50 conference after co-founder David Sacks, a former PayPal executive, developed the basic concept of Yammer while working on a startup project after he left PayPal in 2002. In addition to its communication function, Yammer also gives third-party developers the opportunity to create and sell their collaborative applications directly to users of the platform.By April 2010, Yammer CEO Sacks claimed that Yammer revenue was doubling every quarter, but would not disclose revenue figures for 2009 beyond describing it as "seven figures." Sacks also stated that 70 percent of Fortune 500 companies were using Yammer at that time.In September 2010, the service was being used by more than three million users and 80,000 companies worldwide, including 80 percent of the Fortune 500. During this period, Yammer 2.0 was launched and the new version was described as a "Facebook for the Enterprise".As of June 12, 2012, Yammer has received around US$142 million in funding from venture capital firms such as Charles River Ventures, Founders Fund, Emergence Capital Partners, Goldcrest Investments, and Ron Conway, an angel investor, while the total number of subscribers is close to 8 million.On June 25, 2012, Microsoft acquired Yammer for US$1.2 billion. Following the acquisition, Microsoft announced that the Yammer team would be incorporated into the Microsoft Office division, but would continue to report to Sacks.On July 24, 2014, Microsoft announced that Yammer development was being moved into the Office 365 development team, and Sacks announced that he was leaving Microsoft and Yammer.

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