An interesting evolution is taking place with angel investors. Those who were once as illusive as unicorns are now creating more formalized systems.
Investment angels are beginning to form groups that actually encourage contact and solicit proposals. In fact, the Kauffman Foundation has put together an Angel Organization Summit, which bings together groups of angels to a common event.
When our business received proposals from a couple of potential angel investors (this was well over a decade ago) it was through intermediaries of intermediaries. The process was quite guarded, and the angel investors were more concerned with protecting their identities than we were about our business secrets. The meetings felt as if we were part of a spy network about to receive some top secret information from Russian agents.
To be sure, many angels are still quite private and can only be reached when they want to be through their accountants, attorneys, or advisors. But in many ways, we are now seeing a more open and aggressive equity market, which can only be good for entrepreneurs. The old ways are too heavily tied to the good old boy networks of years gone by. A more open “system” creates more opportunity for many entrepreneurs who would never have gotten an introduction to potential investors just a few years ago.
Angel investors still have the same basic preferences as they have in the past:
1. The typical deal size is $50 – $500K, although some will invest over $1 million
2. Like to be involved at Board level, but not in day-to-day decision making (as one once said, “I don’t want to flip the hamburgers”.)
3. They generally don?t like retail, but a few do and actually specialize in it.
4. They are more patient than venture capitalists, but still are looking for a 3-7 year pay-off and exit from the deal.
5. They can often provide a quicker decision than other equity sources.
6. They are much more willing to provide seed or stage-two funding than venture capitalists ever will be.