The Angel Investor : Introduction

ANGEL INVESTORS NUMBER in the hundreds of thousands and are proliferating at a rapid rate. these affluent individuals provide entrepreneurs and new ventures with needed venture capital, especially when more traditional sources of capital, such as investment banks and larger money management venture capital firms, are not willing to get involved.

Angel investors have been major engines of the booming New Economy. Angel investors generate new ideas, contribute innovative technologies to the marketplace, and inject much-needed vitality into complacent industries. new Ventures occasionally grow into major corporations, such as Microsoft, Dell, America Online, Netscape, and others.

We cannot underestimate how astute many of these investors are. They are self-made millionaires. Over and above their homes and cars, they typically have net worth of $1 million to $10 million, having been extremely successful investors in the public as well as the private market. In most cases, they bank on their own judgment to once again select venture like the one that made them wealthy.

To minimize the confusion about which capital sources are angel investors, I’m going to define some other sources of funds for private companies:

• Institutional investor: A corporation, financial institution, or other organization (e.g., venture capital firm) that uses money raised from another party to provide capital to a private business owned and operated by someone else.
• Friends and family investor: An individual who uses his own money to provide capital to a private business owned and operated by a family member, work colleague, friend or neighbor.
• Informal investor: An individual (not an institution) who uses his own money to provide capital to a private business owned and operated by someone else.

Venture capital itself has been defined as the search for significantly above average long-term investment returns accomplished primarily through equity ownership of or involvement in risky start-up or emerging companies, companies typically managed by experienced executives. Such companies tend to focus on rapidly growing markets and to provide innovative products, technology or services.

Venture investment can range from riskier seed, R&D, and start-up funding at the earlier stages through bridge, acquisition, merger, and turnaround investments at later stages in the development of the venture. Obviously, ventures at the riskier end of the spectrum offer potentially higher returns if they meet their projections.

Typically, seed defines a company in the idea stage, when its process are being organized. R&D is typical of the financing of product development for early-stage but more developed companies, start-up designates a venture completing its product development and initial marketing. At the less-risky end, bridge designates a venture requiring short-term capital to reach stability. Acquisition and merger refer to a company's need for capital to finance an acquisition. Turnaround denotes a venture that needs capital to change from an unprofitable to a more profitable circumstance.