Angel investors are not a new phenomenon. Angel investors have provided seed capital and advice to would-be entrepreneurs for as long as people have collaborated to form commercial enterprises. Before the development of joint stock companies and then public markets, most commercial enterprises relied on rich and knowledgeable people for their initial funding.
Angels have become an increasingly important source of equity finance over the last decade due to the proliferation of angel groups which can accommodate, via resource sharing, a large number of small deals with their attendant due diligence and oversight needs. Angels are now prominent co-investment partners in the early-stage market.
In the angel group model, angels come together to work collaboratively although investments are done individually and are therefore not generally diversified.
Angels Encourage Innovation
- Entrepreneurship plays a key role in driving business innovation.
- While entrepreneurs face several common challenges, often their greatest challenge is raising capital.
- Angel investors are wealthy individuals with business or technology backgrounds who provide entrepreneurs with capital, connections, and guidance.
- They provide early-stage financing in a space once occupied by venture capitalists, who now invest primarily in larger deals and more mature companies.
Angels Deliver Economic/Societal Benefits
- Development and commercialization of innovation are central to an economy’s competitiveness. Entrepreneurs who engage in these activities are major contributors to growth in the country’s productivity, wealth and jobs.
- Angel investors provide an important source of local investment capital, often in the same industries pursued by a region or states’ economic growth strategies.
- By supporting early-stage ventures, angels provide investment opportunities for VC firms and improve the prospects of developing a regional VC industry.