Angel investing is about passion. Angels get involved mainly because they enjoy helping early-stage businesses, mentoring young entrepreneurs, and participating in developing an emerging business. When you enter the angel investors' world, you will be stepping into a micro-world of investors, advisors, venture capitalists, banks, accountants, lawyers, universities, and entrepreneurs networked together in a somewhat hidden economy. It is a world rich with stories of great successes and unfortunate failures, but it is also a world of creative ideas, extraordinary business adventures, and fascinating people.
Historically, angel investors have been high net-worth individuals who have privately invested in new start-up firms or the early formative stage of emerging ventures with little publicity of their involvement. They typically kept quiet about their wealth and discretely searched for deals to invest in. Angels were very wealthy individuals who invested widely across many ventures.
The term ‘business angels’ comes from Broadway. At the end of the 19th century, wealthy investors began providing funds for directors to ﬁnance the production of new musicals and plays.
Besides ﬁnancial beneﬁts, their motivations came from their love for the theater and the opportunity to meet and socialize with famous actors, writers, and producers. These investors secured high-risk capital and were motivated by something larger than money. Even today, writers, actors, producers, and musicians often depend on the altruism of others to promote their projects and careers.
“I am totally convinced that I would never have survived in my very first venture had it not been for the support of a group of angel investors who provided both funds and active support to the business,” said Dr. Tom McKaskill, a global serial entrepreneur, consultant, educator, and author.
Business angels have usually had a successful career, but because of age or other reasons, they cannot devote themselves to their business anymore. There is always one motto in their thoughts: “there is still more to be earned.” This attitude can always lead to the possibility of losing much money, but that does not prevent them from accepting the challenge.
Many angels have invested with friends, colleagues, or casual acquaintances. Often they have failed to structure the deal professionally or used the services of a knowledgeable accountant and lawyer familiar with private equity investments. Sometimes, through lack of knowledge, they have been too generous, resulting in the entrepreneur having unrealistic expectations in the next round of funding. Alternatively, they have been too harsh, leaving the entrepreneur with too little equity in the next round of funding. Entrepreneurs who don’t have enough incentive won’t put in the effort required to make the venture successful.
Characteristics of Business Angels
Studies conducted in various countries conﬁrm that most business angels are male; for example, in the United States it is 95 percent; in Great Britain 99 percent; in Germany 97 percent; in Hungary 100 percent. This may be because a small number of women have created successful enterprises or hold executive positions in large companies. Wealth. This is one of the main preconditions of becoming a business angel. Business angels invest an average of £10,000 per deal and generally have a portfolio of two to ﬁve investments. In the U.S., one in every three angels has a net worth of at least one million dollars, whereas, in Great Britain, 19 percent of business angels are millionaires.
Age, business angels are generally from 40 to 65 years old. It is assumed that by this age, entrepreneurs have gained enough experience and gathered enough money. All that is left for them is to choose whether to be relieved of their duties or become economically active business angels. Hill and Power have concluded in their research: “The average age of the subjects is 49 years.”
Business angels are typically people with a university diploma and/or professional qualiﬁcations, but angels with masters and doctorates are rare. According to many pieces of research, about 75 percent of business angels have a university degree, and about 20 percent are enrolled in university but never finished their studies.
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