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Angel Investing – More than Just Money

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Today’s Angels Want to Bring More than $$ to the Game

In a recent survey of nearly 2,000 accredited, high net-worth Angel investors conducted by the Spencer Trask Institute, today’s Angel investor expects to bring more than just capital to the table when funding start-ups. In fact, in many cases the cash investment is akin to a poker game ante – it’s the price you pay to get in the game and stay there as the game plays out. This is an important aspect of the Angel investing game that both the Angel community as well as the entrepreneurs seeking investment capital would be wise to understand.

Today’s Angels, particularly those who invest as standalone individuals, are looking for something more than just absolute financial returns from their investments. According to our survey results, the economic return on their invested capital was only the fourth most important aspect of their investment decision and, while no Angel wants to lose money on any deal, their investment decisions are motivated by several other factors relating to their personal goals, their emotional/psychological needs, and a host of other non-financial criteria. Let’s look closer at these other motivating factors.

The number one issue driving individual Angel investment decisions among the survey respondents (42%) was their desire to bring their specific prior knowledge and experience to bear in the companies in which they invested. The third most important factor in the survey, or 36%, said that it was their desire to play an active role in the investment process that motivated them to invest. Taking these two issues together, we can infer from the survey results that Angels, while certainly desiring to reap a handsome return, are at least as interested in playing an important and active role in the company as realizing an attractive return. Considering that the traditional Angel demographic tends toward those who are past the prime of their working careers, retired or semi-retired, probably feeling that their years of accumulated knowledge can and should be put to good use by steering early stage companies toward success.

In interviews with selected Angels, a common theme amongst many of them was the need to remain relevant, especially among younger retirees. Many had long and successful careers running, managing or starting businesses where they called the shots every day, made all the critical decisions, were highly regarded amongst their industry peers and were thought leaders in their areas of specialty. This group of Angels were seeking outlets for their talents while simultaneously expecting that their Angel activities would keep them sharp, abreast of technology and mentally stimulated and were prepared to trade some investment risk for the opportunity to stay in the game. Entrepreneurs should consider these factors when interviewing potential Angel investors – many can bring more ‘capital’ to the table than just investment dollars and want to be involved in the company’s operations and strategy.

For many early stage companies, this situation can result in the ideal Angel investor – an individual willing to (1) put up money in the earliest stages; (2) share valuable insights gained from long and successful career, and possibly take a seat on the Board of Directors; and (3) provide a sanguine, realistic, and prudent voice to balance a youthful and dedicated, but often inexperienced, entrepreneur/founder. A business savvy Angel who is deeply involved in the company can help management avoid the common pitfalls of early stage companies, such as preservation of cash and failing to identify specific buyers with specific needs. They also add value downstream, networking to find additional talent during the scale up of operations, networking within their peers to identify selling opportunities, and helping out in a wide range of daily operational distractions that often prevent the entrepreneur from focusing on getting product built and in the market. By taking ‘ownership’ of the company, they are aware of emerging needs for follow on capital (which they can often provide without a burdensome fund raising effort), their involvement with the company can provide needed marketplace credibility – both to investors, partners, and prospective customers – that is often the make-or-break factor in the company’s success.

These super Angels – call them what you will, from ‘involved investor’ to ‘Venture Coach’ to ‘CEO mentor’ – can be the deciding factor in guiding an early stage company from seed to success, and entrepreneurs seeking early stage capital would be wise to cultivate and nurture these types of investors early in the game. The right combination of investor and entrepreneur can change the odds of success dramatically and represents the very best formula for long term returns for everyone involved.

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About the Spencer Trask Institute

The Spencer Trask Institute (STI) is an independent, not-for-profit research group whose mission is to provide high net-worth (HNW) angel investors with a forum to share their thoughts and sentiments on a wide range of investment topics.

Our objective is to help investors to collaborate amongst people of similar circumstances in a totally independent, unbiased and anonymous way by sharing their sentiments and concerns in a forum that allows them to see and understand what others are thinking, planning and doing to respond to an ever-changing financial landscape.· Our survey-based research topics range from asset allocation and tax policy to technology trends, seed and mezzanine funding options and early-stage best practice management. We strive to deliver relevant facts based on unbiased data and promise to share the results of our surveys combined with hard-hitting insight back to our research community.

STI is managed by professionals with a long history in market research, investment analysis and a deep understanding of early-stage investing.· There are no fees associated with becoming a member of our survey community, and we accept no paid sponsor or advertisements.