An angel investor or business angel is an individual who provides capital for a business start-up, usually in exchange for ownership equity. Unlike venture capitalists, angels invest their own money. A small percentage of angel investors organize themselves into angel networks or angel groups to share research and pool their own investment capital. A startup company is a company with a limited operating history. ... Ownership equity, commonly known simply as equity, also risk or liable capital, is a financial term for the difference between a companys assets and liabilities -- that is, the value that accrues to the owners (sole proprietor, partners, or shareholders). ... Venture capital is a general term to describe financing for startup and early stage businesses as well as businesses in turn around situations. ... Invest redirects here. ...

Angel capital fills the gap in start-up financing between the "three F"s (friends, family, and fools) of seed capital and venture capital. While it is usually difficult to raise more than US$100,000 - US$200,000 from friends and family, most venture capital funds will not consider investments under US$1 - 2 million. Thus, angel investment is a common second round of financing for high-growth start-ups, and accounts in total for more money invested annually than all venture capital funds combined (US$24 billion vs. $22 billion in the US in 2004, according to the University of New Hampshire's Center for Venture Research). Seed money is money invested in a company to begin new projects, which it initially was not capable of creating. ... Venture capital is a general term to describe financing for startup and early stage businesses as well as businesses in turn around situations. ...

Angel investments bear extremely high risk, and thus require a very high return on investment. Because a large percentage of angel investments are lost completely when early stage companies fail, professional angel investors seek investments that have the potential to return at least 10 or more times their original investment within 5 years, through a defined exit strategy, such as plans for an initial public offering or an acquisition. After taking into account the need to cover failed investments and the multi-year holding time for even the successful ones, a typical successful portfolio of angel investments might result in an Internal rate of return of 50-100%. While the investor's need for high rates of return on any given investment can thus make angel financing an expensive source of funds, cheaper sources of capital, such as bank financing, are usually not available for most early-stage ventures. For other uses, see Risk (disambiguation). ... In finance, the return on investment (ROI) or just return is a calculation used to determine whether a proposed investment is wise, and how well it will repay the investor. ... An exit strategy is a means of escaping a very difficult situation. ... An initial public offering (IPO) is the first sale of a corporations common shares to public investors. ... Merger redirects here. ... The internal rate of return (IRR) is a capital budgeting method used by firms to decide whether they should make long-term investments. ... Banker redirects here; see wiktionary:banker for more meanings. ...

Angel investors are often retired business owners or executives, who may be interested in angel investing for other reasons in addition to pure monetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a less-than-full-time basis. Thus, in addition to funds, angel investors can often provide valuable management advice and important contacts.

According to the Center for Venture Research, there were 225,000 active angel investors in the U.S. in 2005. Beginning in the late 1980s, angels started to coalesce into informal groups with the goal of sharing deal flow and due diligence work, and pooling their funds to make larger investments. Angel groups are generally local organizations made up of 10 to 150 accredited investors interested in early-stage investing. In 1996 there were about 10 angel groups in the U.S.; as of 2005 there are over 200. In January, 2004 the not-for-profit Angel Capital Association, and later the Angel Capital Educational Foundation, were formed under the auspices of the Ewing Marion Kauffman Foundation, bringing together over 100 of the most active angel groups in the United States. The ACA and ACEF have an annual summit meeting each year in a different city, bringing together the leaders of the different groups to exchange best practices.

In 2004, according to the Center for Venture Research, 18.5% of deals that got through the early screens of angel groups and were presented to investors attracted funding, up significantly from 10% in 2003, which is about the historical average. But since this figure discounts the substantial initial screening, the percentage of all companies seeking angel financing that actually receive funding is closer to 0.5%-1% (but still higher than the 0.2%-0.25% of applicants who receive funding from venture capitalists). Approximately 45,000 US companies received angel funding in 2004, and on average, each raised about US$469,000. The lion's share went to high-tech companies, and the single biggest category within high tech was software.

See also

• Private equity
• Entrepreneurship
• Pre-money valuation
• London Business Angels

Private equity is a broad term that refers to any type of equity investment in an asset in which the equity is not freely tradable on a public stock market. ... Entrepreneurship is the practice of starting new organizations, particularly new businesses generally in response to identified opportunities. ... A pre-money valuation is a term used in private equity or venture capital that refers to the valuation of a company or asset prior to an investment or financing. ... This article or section does not adequately cite its references or sources. ...

External links

• Angel Capital Association (US)
• European Business Angel Network
• University of New Hampshire Center for Venture Research
• Resources for Angel Investor Capital