An angel Investor or angel (also known as a business angel or informal 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 organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.[1]
Source and extent of funding[edit]
Angels typically invest their own funds, unlike venture capitalists who manage the pooled money of others in a professionally-managed fund.[7][8] 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[9] by William R. Kerr, Josh Lerner, and Antoinette Schoar provides evidence that angel-funded startup companieshave historically been less likely to fail than companies that rely on other forms of initial financing.
Angel capital fills the gap in start-up financing between "friends and family"[10] who provide seed funding—and 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.[11] 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).[12][13]
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%).[12][14] While more readily available than venture financing, angel investment is still extremely difficult to raise.[15] However some new models are developing that are trying to make this easier.[16]
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