For an entrepreneur, an angel investor is exactly as the name suggests– the godsend of a high net worth individual willing to put cash into a nascent business idea or company in exchange for equity.
Angel Investors and Small Business
Angel investors are critical to the early genesis of future corporations, often willing to invest at the earliest of development stages, ahead of any venture capital fund. In 2008 for example, U.S. angel investors were involved in 55,000 deals worth a total of $19 billion. Out of this number, which works out to an average of 150 transactions for every day of the year, including weekends (when angel investors are often at their busiest), 35,000 deals involved small businesses.
Angel Investors Numbers Growing
The intersection of angel investors and new business ideas is one of the most dynamic corners of any capitalist economy. In the past few decades, angel investor groups have grown at a rapid pace, designed to connect like-minded individuals with new investment opportunities. At an August 2010 angel-investing event organized in Palo Alto, CA by VCTaskforce for example, cloud-computing start-up Cloud Cruiser was voted “best in show”. The company also received a rare perfect score from a selection committee comprised of representatives from the groups Angels Forum, Band of Angels, Harvard Angels, and Sand Hill Angels.
Company’s Market Valuation Key
Another important component of the angel investment curve involves the not-always-scientific process of estimating a new company’s prospective market valuation. This spreadsheet number tends to change often during the early stages of an angel-supported company and can sometimes generate controversy if the perception is made that the number is too high. The equity share that an angel investor receives from their early investment relates very directly to a company’s accepted valuation at the time of their participation.
Angel investors are also becoming more involved in their own VC-like funds. Recently for example, Mike Maples closed a $75 million U.S. “super-angel” fund, while Dave McClure set up a $30 million capital flow under the name 500 Startups.