An angel investor is typically a high net worth individual who invests capital directly into a start-up or early-stage company in exchange for stock. They are accredited investors who invest their own money. They are not venture capitalists—professionals who investment money on behalf of a group of investors. The typical angel is an entrepreneur or business leader who is looking to help others achieve success.
According to the Center for Venture Research, angel investors in the United States invest around $19 billion per year in about 55,000 ventures, 35,000 of which are considered small businesses. Estimates place the number of angel investors in the U.S. at about 225,000. Angels usually look for innovative companies that can quickly grow sales revenue and increase in value. Thus, most of the available angel investment capital goes to companies that have the potential to grow to hundreds of employees and $50 million in sales within the first three to seven years.
An angel investor expects to lose all of their investment in a company about half the time because the company in which they invested fails. The more sophisticated angels invest in at least 10 companies and expect to earn a big return from just one or two. For this reason, the angel is usually looking for a potential return at least a 10 times return on his investment.
Because the risk is high, angels are usually unwilling to invest a significant amount of their own money in a single enterprise. Angels began forming groups to pool their money and work cooperatively to evaluate and invest in ventures. The group model has become increasingly popular over the last several years.
Still, there only a few angel investing groups in Central Florida who are registered with the Angel Capital Education Foundation:
- Angel Forum of Florida (www.aiffl.org)
- Central Florida Technology Ventures(www.cftechventures.com)
- Emergent Growth Fund (www.emergentgrowth.com)
- Winter Park Angels (www.winterparkangels.com)
If you are considering attracting an angel investor, you should consult with one of our transactional attorneys before starting the process. We can provide you with sound advice and guidance to avoid hidden pitfalls in the process that could jeopardize your ownership position in and control over your enterprise.