NFIB

Angels: A Funding Source for Firms With Limited Revenue
04/ 22/ 2003

Individual venture capitalists interested in providing you with seed and startup financing are commonly referred to as "angels." According to the Center for Venture Research at the University of New Hampshire, these informal investors invest $10 to $20 billion in over 30,000 ventures annually. Business angels, unlike other venture capital investors, prefer to invest their money in a new business as early as possible. They normally take a smaller share of your business than a venture capitalist and stay out of the day-to-day operations. They understand high risk and expect high return. Many angels will alter their investment criteria and standards if they develop a strong, trusting bond with the entrepreneur. These investors generally fall into one of the following basic types:

Corporate angels

Typically, these are senior managers at Fortune 1000 corporations who have been laid off with generous severances or have taken early retirement. In addition to cash, you may get the corporate angel to occupy some senior management position, such as business development. Investments usually run from $200,000 to $1 million.

Entrepreneurial angels

These are the most prevalent investors. Most of them own and operate highly successful businesses and are really looking for synergy with their current business, a way to diversify their portfolio or a way to prepare for life after their current business no longer requires their attention. These angels almost always take a seat on the board of directors but rarely assume management duties. They will make fair sized investments, typically $200,000 to $500,000.

Enthusiast angels

These angels simply like to get involved in deals. Most are 65 or older, independently wealthy from success in a business that they started and have an abbreviated work schedule. For them, investing is a hobby and, thus, they generally do not seek a role in management or place on the board. They tend to invest in technologies or industries as much as they do in people and ideas. Their investments tend to be small, from $10,000 to $200,000.

Micromanagement angels

These are very serious investors. Some were born wealthy, but the vast majority attained their wealth through their own efforts. Though they generally do not seek an active role in company management, they usually demand a board seat and expect to play an active role in company strategy. They generally invest $25,000 to $200,000.

Professional angels

The term "professional" in this context refers to the investor's occupation, such as doctor, lawyer and in some instances, accountant. Professional angels like to invest in companies that offer products or services with which they have some experience. They can provide you with additional value when they offer legal, accounting or financial expertise for which you would otherwise have to pay a fee to receive. These angels generally invest between $25,000 and $200,000.

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Article provided by Aztech Financial Services

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