Background on Angel Investing
Angel investor groups vary in structure, from formal to informal. Formal groups follow strict participation requirements that guide members’ minimum investment activity and event attendance. Some groups pool members’ capital to make investments on the group’s behalf, while others (like the Billiken Angels Network) allow individual members to invest in specific deals of interest.
A typical angel group’s investment ranges widely from $50,000 to $500,000 per deal, depending on how many group members are interested in the deal. Investments by the Billiken Angels Network range from $5,000 (enough to fund many student start-ups businesses) to $500,000. While no two angel groups operate exactly alike, most angel groups, like the Billiken Angels Network, maintain a local or regional geographic focus in order to maximize members’ ability to actively engage in the growth of their investments.
Many angel groups (including the Billiken Angels Network) have web sites that provide directions for business plan submission. After screening business plans for top-quality deals that match the group’s criteria, these groups organize periodic breakfast or dinner meetings for members to hear pitches from companies selected to present. The Billiken Angels Network meets once a quarter in person and holds another presentation online once a quarter.
If the group (or in the case of the Billiken Angels, members of the group) decides to proceed, interested members commonly collaborate on due diligence and deal negotiation. Based on the group’s structure, investments are either made directly by individual members, or by the group as a whole. Most groups (including the Billiken Angels) apply standard terms to their investments, with some flexibility to negotiate.
Angels typically invest between $25,000 (for the Billiken Angels Network, $5,000) and $100,000 per transaction individually, and up to $500,000 as a group. Typically long-established angel groups invest in one to four transactions per year. On average, angels are patient, with an average term for holding an investment of eight years. For the risk and added value they provide, angels typically seek returns of at least ten times their investment on start-ups although above-market returns are more acceptable for investments intended to help grow existing businesses to their next level.
MIT’s Entrepreneurship Center identifies four types of angel investors:
A typical angel group’s investment ranges widely from $50,000 to $500,000 per deal, depending on how many group members are interested in the deal. Investments by the Billiken Angels Network range from $5,000 (enough to fund many student start-ups businesses) to $500,000. While no two angel groups operate exactly alike, most angel groups, like the Billiken Angels Network, maintain a local or regional geographic focus in order to maximize members’ ability to actively engage in the growth of their investments.
Many angel groups (including the Billiken Angels Network) have web sites that provide directions for business plan submission. After screening business plans for top-quality deals that match the group’s criteria, these groups organize periodic breakfast or dinner meetings for members to hear pitches from companies selected to present. The Billiken Angels Network meets once a quarter in person and holds another presentation online once a quarter.
If the group (or in the case of the Billiken Angels, members of the group) decides to proceed, interested members commonly collaborate on due diligence and deal negotiation. Based on the group’s structure, investments are either made directly by individual members, or by the group as a whole. Most groups (including the Billiken Angels) apply standard terms to their investments, with some flexibility to negotiate.
Angels typically invest between $25,000 (for the Billiken Angels Network, $5,000) and $100,000 per transaction individually, and up to $500,000 as a group. Typically long-established angel groups invest in one to four transactions per year. On average, angels are patient, with an average term for holding an investment of eight years. For the risk and added value they provide, angels typically seek returns of at least ten times their investment on start-ups although above-market returns are more acceptable for investments intended to help grow existing businesses to their next level.
MIT’s Entrepreneurship Center identifies four types of angel investors:
- Guardian Angels: Bring both entrepreneurial and industry expertise. Many have been successful entrepreneurs in the same sector as the new companies in which they invest.
- Entrepreneur Angels: Have experience starting companies but come from different industry sectors.
- Operational Angels: Offer industry expertise - often from experience working for large, established companies - but may lack first-hand experience with the travails of a start-up.
- Financial Angels: Typically invest purely for a financial return.
