Angel investor

The application of the term "angel" originates in Broadway theater, where it was used to describe wealthy individuals who provided money for theatrical productions that would otherwise have had to shut down.{{Cite book |last=Bansal |first=Raman |title=Your First Startup- Sparking Entrepreneurship |publisher=BFC Publications |year=2021 |isbn=978-93-91455-26-2 |pages=155 |language=en}} This term, however, was not used in the context of investing in companies until 1978, when William Wetzel, a then-professor at the University of New Hampshire and founder of its Center for Venture Research, completed a pioneering study on how entrepreneurs raised seed capital in the US.{{Cite book |last=Mustafa |first=Mohammad |title=Angel Investing: The Untold Story of India |publisher=Macmillan |year=2021 |isbn=978-981-16-0921-3 |location=Singapore |pages=12 |language=en}} He began using the term "angel" to describe the investors who supported them. A similar term, "patron", is commonly used in arts.

Angel investors are often retired entrepreneurs or executives who may be interested in angel investing for reasons that go beyond pure monetary return.{{Citation needed|date=October 2023}} These reasons 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. Because innovations tend to be produced by outsiders and founders in startups, rather than existing organizations,{{Citation needed|date=June 2025}} angel investors provide (in addition to funds) feedback, advice, and contacts.{{Cite book |last1=Hammons |first1=Rebecca Lee |title=Fundamentals of Internet of Things for Non-Engineers |last2=Kovac |first2=Ronald J. |publisher=CRC Press |year=2019 |isbn=978-1-000-00034-4 |location=Boca Raton, FL |pages=390 |language=en}} Because no public exchanges are listing their securities, private companies meet angel investors in several ways, including referrals from the investors' trusted sources and other business contacts, at investor conferences and symposia, and at face-to-face meetings organized by groups of angels where companies pitch directly to investors.

According to the Center for Venture Research, there were 363,460 active angel investors in the US in 2021.{{Cite web |last=Sohl |first=Jeffrey |date=May 20, 2022 |title=The Angel Market in 2021: Metrics Indicate Strong Market |url=https://paulcollege.unh.edu/sites/default/files/resource/files/fy_2021_analysis_report_final.pdf |access-date=February 10, 2023 |website=Center for Venture Research}} 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 US; by 2006, there were over 200.{{cite news|publisher=CNN Money|title=How to fund other startups (and get rich)|date=May 31, 2006|first=Jeanne|last=Lee|url=https://money.cnn.com/2006/05/30/smbusiness/angels_wealthbuilders_fsb/|access-date=2012-12-01}}

Angel investors typically invest their funds (unlike venture capitalists, who manage the pooled money of others in a professionally managed fund).{{cite web|url=http://enterpriseforum.mit.edu/mindshare/startingup/financing-sources.html|publisher=Boston Business Journal|title=All Financing Sources Are Not Equal|author =Joe Hadzima}}{{cite web|url=http://nvca.org/def.html |title=National Venture Capital Association |publisher=Nvca.org |date=2012-11-20 |access-date=2012-12-01 |archive-url=https://web.archive.org/web/20120729015249/http://nvca.org/def.html |archive-date=2012-07-29 }} Although typically reflecting the investment judgment of an individual, the entity providing the funding may be a trust, business, limited liability company, investment fund, or other vehicle. A Harvard report{{cite web|author1=William R. Kerr |author2=Josh Lerner |author3=Antoinette Scholar |url=http://hbswk.hbs.edu/item/6347.html?wknews=041910 |title=The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis – HBS Working Knowledge |publisher=Hbswk.hbs.edu |date=2010-04-15 |access-date=2012-12-01}} by William R. Kerr, Josh Lerner, and Antoinette Schoar provides evidence that angel-funded startups are more likely to succeed than companies reliant on other forms of initial financing. The paper found "that angel funding is positively correlated with higher survival, additional fundraising outside the angel group, and faster growth measured through growth in website traffic".

Angel capital fills the gap in seed funding between "friends and family"Loewen, Jacoline (2008). Money Magnet: Attract Investors to Your Business: John Wiley & Sons. {{ISBN|978-0-470-15575-2}}. funding rounds and more robust start-up financing through formal venture capital. Although it is usually difficult to raise more than a few hundred thousand dollars from friends and family, most traditional venture capital funds are usually not able to make or evaluate small investments under US$1–2 million.{{cite book|url=https://books.google.com/books?id=4KRnkLZfXtMC&pg=PA291 |title=Handbook of Entrepreneurship Research: An Interdisciplinary Survey and ... – Zoltán J. Ács, David B. Audretsch – Google Books |access-date=2012-12-01|isbn=9781402073588 |last1=Ács |first1=Zoltán J. |last2=Audretsch |first2=David B. |year=2003 |publisher=Springer }} On an annual basis, the combined value of all angel investments in the US almost reaches the combined value of all US venture capital funds, while angel investors invest in more than 60 times as many companies as venture capital firms (US$20.1 billion vs. $23.26 billion in the US in 2010, into 61,900 companies vs. 1,012 companies).{{cite web|last=Sohl |first=Jeffrey |title=Full Year 2010 Angel Market Trends |url=http://wsbe.unh.edu/sites/default/files/2010_angel_market_press_release.pdf |publisher=Wsbe.unh.edu |access-date=2011-09-27 |date=2011-04-12 |archive-url=https://web.archive.org/web/20111216015055/http://wsbe.unh.edu/sites/default/files/2010_angel_market_press_release.pdf |archive-date=2011-12-16 }}{{cite web|title=Historical Trend Data, Select Financing Sequence – 1|url=https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=historical|work=The Money Tree Report|publisher=Pwcmoneytree.com|access-date=2011-09-27|date= 2011|archive-url=https://web.archive.org/web/20111024212456/https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=historical|archive-date=2011-10-24}}

There is no set amount for angel investors. Investments can range from a few thousand to a few million dollars. The healthcare/medical industry accounted for the largest share of angel investments in 2010, with 30% of total angel investments (vs. 17% in 2009), followed by software (16% vs. 19% in 2007), biotech (15% vs. 8% in 2009), industrial/energy (8% vs. 17% in 2009), retail (5% vs. 8% in 2009) and IT services (5%).{{cite web|last=Sohl |first=Jeffrey |title=Full Year 2009 Angel Market Trends |url=http://wsbe.unh.edu/files/2009_Angel_Market_Press_Release.pdf |publisher=Wsbe.unh.edu |access-date=2011-09-27 |date=2010-03-31 |archive-url=https://web.archive.org/web/20130120034841/http://wsbe.unh.edu/files/2009_Angel_Market_Press_Release.pdf |archive-date=2013-01-20 }} While more readily available than venture financing, angel investment is still extremely difficult to raise.{{cite web|title=Entrepreneur FAQ|url=http://www.californiainvestmentnetwork.com/entrepreneur/44|publisher=California Investment Network|access-date=2011-09-27|quote=Angels are also extremely discerning in the projects that they will invest in (rejecting, on average, approximately 97% of the proposals submitted to them).}} However, some new models are developing that are trying to make this easier.{{cite web|last=Prentice |first=Claire |url=http://news.bbc.co.uk/2/hi/10100885.stm |title=Cash-strapped entrepreneurs get creative |work=BBC News |date=2010-05-12 |access-date=2012-12-01}}

Much like other forms of private equity, angel investment decision-making has been shown to suffer from cognitive biases such as the illusion of control and overconfidence.{{Cite journal|last1=Zhang|first1=Stephen X.|last2=Cueto|first2=Javier|date=2015-11-09|title=The Study of Bias in Entrepreneurship|journal=Entrepreneurship Theory and Practice|language=en|volume=41|issue=3|pages=419–454|doi=10.1111/etap.12212|s2cid=146617323|issn=1042-2587|url=http://psyarxiv.com/76rkv/|url-access=subscription}}

Angel investments bear extremely high risks{{cite web|last=Rachleff|first=Andy|title=Why Angel Investors Don't Make Money … And Advice For People Who Are Going To Become Angels Anyway|date=30 September 2012 |url=https://techcrunch.com/2012/09/30/why-angel-investors-dont-make-money-and-advice-for-people-who-are-going-to-become-angels-anyway/|publisher=Techcrunch|access-date=30 September 2012}} and are usually subject to dilution from future investment rounds. As such, they require a very high return on investment. Additionally, angel investors often mitigate the risk of an angel investment by allocating less than 10% of their portfolio to these types of investments. 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 ten 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, however, the actual effective internal rate of return for a typical successful portfolio of angel investments is typically as 'low' as 20–30%. While the investor's need for high rates of return on any given investment can 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.

In recent years, a new trend has emerged in the business world known as "founding angels". These are angel investors who get involved with a startup even before it is officially established.{{cite book |last1=Sørheim |first1=Roger |last2=Botelho |first2=Tiago |title=Handbook of Research on Business Angels |chapter=Categorisations of business angels: An overview |date=2016 |pages=76–91|doi=10.4337/9781783471720.00009 |isbn=9781783471720 }} Unlike a traditional business angel, because founding angels invest so early, they are typically seen as "founders" and typically have much greater involvement in the early stages of the business.{{Citation |last1=Tenca |first1=Francesca |title=Business Angels Research in Entrepreneurial Finance: A Literature Review and a Research Agenda |date=2019-03-01 |url=https://onlinelibrary.wiley.com/doi/10.1002/9781119565178.ch7 |work=Contemporary Topics in Finance |pages=183–214 |editor-last=Claus |editor-first=Iris |access-date=2023-06-23 |publisher=Wiley |language=en |doi=10.1002/9781119565178.ch7 |isbn=978-1-119-56517-8 |last2=Croce |first2=Annalisa |last3=Ughetto |first3=Elisa |editor2-last=Krippner |editor2-first=Leo|hdl=11311/1031294 |hdl-access=free |url-access=subscription }}

Founding angels most often co-found startups with scientists, developers, or engineers in the technology space who bring in the technology upon which the start-up is based. After they are founded, they are actively engaged in the management of startups, typically in a non-executive position, supporting the day-to-day running of the business. They less often have a predefined exit strategy, and more often hold onto equity long into the company's development.{{cite journal |last1=Festel |first1=Gunter |last2=De Cleyn |first2=Sven |title=Founding angels as an emerging subtype of the angel investment model in high-tech businesses |journal=Venture Capital |date=2013 |volume=15 |issue=3 |pages=261–282 |doi=10.1080/13691066.2013.807059|s2cid=154613196 }}

Angel investors provide early-stage funding to startups in exchange for equity. They offer capital, mentorship, industry connections, and strategic guidance. Their support helps startups grow, refine business models, and secure future investments from venture capitalists or other funding sources.{{cite web |title=Angel Investors: Roles, Types & How They Work |url=https://www.angelschool.vc/blog/angel-investors |website=www.angelschool.vc}}

Canada is reportedly home to the most sophisticated and advanced network of angel investors in the world.{{Cite web |date=2019-04-26 |title=Claudio Rojas, NACO's new CEO, wants to "see some magic happen" for Canadian entrepreneurs {{!}} BetaKit |url=https://betakit.com/claudio-rojas-nacos-new-ceo-wants-to-see-some-magic-happen-for-canadian-entrepreneurs/ |access-date=2022-03-13 |language=en-CA}} Incorporated in 2002, the National Angel Capital Organization (NACO) pioneered the angel investing movement and supported the formation of regional angel networks in Canada. According to both NACO and the Business Development Bank of Canada, there are 20,000–50,000 active angel investors in Canada.{{cite web|title=Angel investors: How to find them|url=https://www.bdc.ca/en/articles-tools/start-buy-business/start-business/pages/angel-investors-how-find-them.aspx|website=www.bdc.ca|date=12 September 2020|publisher=BDC/NACO}} Over 4,000 are members of 45 angel groups that are NACO members.{{cite web|title=Angel Activity Report 2016|url=https://www.nacocanada.com/cpages/angel-activity-report|website=www.nacocanada.com|access-date=25 March 2018}}

Before 2000, it was difficult for startups in China to find local angel investors. Entrepreneurs, such as Jack Ma of Alibaba Group and many others, needed to raise funds from Softbank, Goldman Sachs, Fidelity, and other institutions.{{cite web|title=Company Overview|url=http://news.alibaba.com/specials/aboutalibaba/aligroup/index.html|access-date=24 January 2014}} However, by 2015, several Chinese Angel groups had been in operation.{{cite web|url=https://www.cnbc.com/2015/11/08/chinas-new-wave-of-angel-investors.html |title= With stocks' stellar growth over, startups gain favor |publisher=cnbc |access-date=2016-08-29|date= 2015-11-09 }}

In 2012, the International Business Angels Assembly took place in the Russian Federation. This was an exclusive event devoted to private investing into innovative projects in Eastern Europe.{{cite web|url=http://www.marchmontnews.com/Finance-Business/Innovation/18522-International-Business-Angels-Assembly-try-yourself-as-a-business-angel.html |title=Marchmont Innovantional News |access-date=2012-12-01}}

In 2022, after Russia's invasion of Ukraine, all investors reduced their activity, this was noticeable in private funds, which reduced the volume of investments by 4 times compared to 2021.{{cite web|url=https://realnoevremya.ru/articles/275632-rossiyskomu-biznesu-nuzhny-angely |title=Российскому бизнесу нужны ангелы |website=realnoevremya.ru | access-date=2024-11-03}}

A study by NESTA{{cite web|author=R.E. Wiltbank|title=Siding with the angels: Business angel investing – promising outcomes and effective strategies|url=http://www.nesta.org.uk/publications/reports/assets/features/siding_with_the_angels|access-date=2013-04-02|archive-url=https://web.archive.org/web/20130113012946/http://www.nesta.org.uk/publications/reports/assets/features/siding_with_the_angels/|archive-date=2013-01-13}} in 2009 estimated there were between 4,000 and 6,000 angel investors in the UK with an average investment size of £42,000 per investment. Furthermore, each angel investor on average acquired 8 percent of the venture in the deal, with 10 percent of investments accounting for more than 20 percent of the venture.

In terms of returns, 35 percent of investments produced returns of between one and five times the initial investment, while 9 percent produced returns of multiples of ten times or more. The mean return, however, was 2.2 times the investment in 3.6 years and an approximate internal rate of return of 22 percent gross.

The UK Business Angel market grew in 2009 through 2010 and, despite recessionary concerns, continues to show signs of growth.{{cite web|url=http://www.venturegiant.com/news-channel-401-the-uk-business-angel-market.aspx |title=The UK Business Angel market for 2009/10 |publisher=Venture Giant |access-date=2012-12-01}}{{cite web|url=http://www.bis.gov.uk/assets/biscore/enterprise/docs/a/11-p116-annual-report-business-angel-market-uk-2009-10 |title=Annual Report on the Business Angel Market in the United Kingdom: 2009/10 |publisher=Bis.gov.uk |access-date=2012-12-01}} In 2013, this dynamic kept going on in the UK as angel investors were named by two-thirds of technology entrepreneurs as a means of funding. By 2015, angel investments had increased throughout the UK, with angels making an average number of five investments, compared to 2.5 in 2009. The same report also found an increase in angel investors making impact investments, with 25% of angels saying they had made an impact investment in 2014.{{cite web|title=UKBAA Report 2015 Main Findings|url=http://www.ukbusinessangelsassociation.org.uk/news/nation-angels-2015-main-findings|website=UK Business Angels|access-date=2015-07-07}}

Geographically, Silicon Valley dominates United States angel investing, receiving 39% of the $7.5 billion invested in US-based companies throughout Q2 2011, 3–4 times as much as the total amount invested within New England. Total angel investments in the United States in 2021 were $29.1 billion, an increase of 15.2 percent over 2020, with 69,060 companies receiving funding. In the United States, angels are generally accredited investors in order to comply with current SEC regulations, although the JOBS Act of 2012 loosened those requirements starting in January 2013. Reaching nearly $23 billion in 2012 in the US, angel investors are not only responsible for funding over 67,000 start-up ventures annually, but their capital also contributed to job growth by helping to finance 274,800 new jobs in 2012.{{cite web |url=https://rtp-equity-static-origin.s3.amazonaws.com/email/investopedia201309/RockThePost_Report_What_Angel_Investors_Know_About_Startup_Investing_Sept2013.pdf |title=What Angel Investors Know About Startup Investing That You Don't |publisher=RockThePost |access-date=2013-09-01 |archive-date=2013-10-05 |archive-url=https://web.archive.org/web/20131005065545/https://rtp-equity-static-origin.s3.amazonaws.com/email/investopedia201309/RockThePost_Report_What_Angel_Investors_Know_About_Startup_Investing_Sept2013.pdf |url-status=dead }} In 2013, 41% of tech sector executives named angel investors as a means of funding.{{cite news|url=https://www.theguardian.com/technology/2014/jul/23/angel-investors-government-grants-dominate-british-tech-investment-venture-capital|title=Angel investors and government grants dominate British tech investment|author =Alex Hern|newspaper=the Guardian|date=2014-07-23}}

Saudi Vision 2030 was launched in 2016; since then, the entrepreneurship ecosystem is being built from scratch. The number of angel investor groups reached eight in 2022.{{cite web |last1=Magnitt |first1=Magnitt |title=Angel Group in Saudi Arabia (KSA) |url=https://magnitt.com/en-sa/investors/angel-group |website=Magnitt |access-date=18 July 2022}}

The Indian Government introduced Atal Incubation centers and Technology Incubation and Development of Entrepreneurs, a program to solely support ICT startups in building emerging technologies including AI, IoT, and blockchain.{{cite book |last1=David |first1=Dharish |chapter=The Startup Environment and Funding Activity in India |date=2020-12-30 |url=https://www.worldscientific.com/doi/abs/10.1142/9789811235825_0007 |title=Investment in Startups and Small Business Financing |pages=193–232 |publisher=World Scientific |doi=10.1142/9789811235825_0007 |isbn=978-981-12-3581-8 |last2=Gopalan |first2=Sasidaran |last3=Ramachandran |first3=Suma}}

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• Crowdfunding
• Deep tech
• Entrepreneurship
• Pre-money valuation
• Private equity
• Revenue-based financing
• Seed money
• Super angel
• Venture capital financing
• Venture funding
• Vulture fund

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