Angel investing has been the fastest-growing investment Asset Class in the past 20 years among progressive investors. From early 1999 to 2019 the pace of Angel Groups’ formation in the US has exploded and grown by a factor of 560%, from 100+ groups in early 1999 to over 600 groups reported at the end of 2019. Some sources say it is even higher if you take into account the informal angel investment activities.
The Origin of the term “Angel” Investor
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 US, and he began using the term “angel” as a term of endearment and appreciation to describe the investors who supported them. A similar term, “patron”, is commonly used in arts.
Who are “Angel” Investors?
An angel investor (also known as a private investor, seed investor or angel funder) is a high net worth individual that is considered to be an “Accredited Investors” who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, angel investors are found among an entrepreneur’s family and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages.
Essentially these individuals both have the finances and desire to provide funding for startups. This is welcomed by cash-hungry startups who find angel investors to be far more appealing than other, more predatory, forms of funding. For the most part, Angel investors are seasoned and experienced business professionals that understand the risk-reward dynamic in high-risk investments.
- A growing economy includes a vibrant entrepreneurial ecosystem – Angel investors are a vital component of entrepreneurial economies.
- Studies show that small, young companies create the majority of US jobs. – A Kauffman Foundation study showed 90% of net new US jobs are created by companies less than five years old. These companies match the profile of startups funded by angel investors – hail to the job creators!
Successful entrepreneurs create significant net worth for themselves and their investors. – A majority of angels were (or are) successful entrepreneurs.
- A new breed of community builders – Angel investment is more than just making money, Angel investors are to be considered community builders. They are looking for more than money, they want to make an impact, especially on their immediate communities. They understand that small businesses are the backbone of any vibrant and economically sound communities. Many want to make a social impact on the region.
Angels Investment activities highlights:
- Total Angels investment reached $23.8B
There are estimated over 64,000 entrepreneurial ventures that received Angel Funding in 2017
- There are estimated over 300,000 active angel investors in the us
- The Average Angel deal size $388,000
- Average equity received was on average of 12.5% on the average valuation of $3.2M
- Women lead ventures received 26.9% of the total Angels investments
- Women represent 22.1% of total Angel Investors
- Minorities account for 5.6% of total Angle population
- Minority-owned ventures account for 11.2% of all Angel deals
- The average age group of Angel Investors is 46 and getting much younger
- Most Angel Investors find this Assets Class appealing for their last career.
- Each investor can choose how active or passive they would like to be – perfect for professionals that are looking for a semi-retirement lifestyle.
- Angel Investors account for 90% or all venture deals.
The economics of Angel Investing Asset Class is proving to beat the stock market is a ratio of 2.2:1 in any given time cycle. Angel investing, if participating in the right way can create a high level of personal wealth in half the time it will take using the traditional portfolio management strategy.
Especially in the current uncertain economic conditions, there is some data point to consider:
- There is uncertainty about how severe the economic downturn will be.
- According to many data sources, the Stock Market will be flat at best in the next 2-3 years, which means that it will not produce wealth for the average investor, it will be capital preservation, at best.
- The Fortune 5000 companies will have to deal with the economic impact, which will impact their stock performance at least for the short term future.
- Startup companies are too small and too early to be affected by the economy
- Startup companies are agile and able to adapt and pivot fast, which increases their survivability rate.
- Any economic downturn creates a wave of opportunities for innovation and changes for startup companies to fill in critical gaps.
Although high-risk investment is not for everyone, if you are considering entering the space, we strongly believe that the time is right. Highly recommended to join an Angel Group/Fund or a Syndication that fits your investment appetite and criteria.
Note: This document was prepared with information acquired from the following Data Sources:
Wikipedia, Investopedia, Saraf, TechCrunch, Forester, Ann Arbor Spark, Michigan Angels Community, ACA, MVCA