Wednesday, December 10, 2008

Who exactly are angel investors?

Let's get some nomenclature out of the way. As I mentioned in my other posts, there are different capital gaps that investors would like to fill. For example,

(this is a very rough estimate)
  • Later-stage VC: usually participates in Series B/C/D after having seen the market traction and significant customer ramp-up. They typically invest >$10M to support the growth.
  • Early-stage VC: usually particiapates in Series A (and sometimes seed round on rare cases) to prove out the business model and test out the customer traction. Many entrepreneurs approach them with several slides thinking that they will take the risk of productizing a concept and end up hearing, "you are too early for early-stage investors like us".
  • Angel groups: So who comes earlier than early-stage investors? Angel groups and seed investors. This group usually participates in $250k-$3M rounds. Because of the overlap between early-stage VCs, the criteria for investment would be similar to early-stage VCs. However, the investment size skews towards the lower end and the team is not complete at this point.
  • Angel/Seed investors: It's important to realize that different between angel groups and angel investors. Angel group consists of a group of certified angel investors who altogether take a look at companies while the decision gets made at the individual level. An angel investor, on the other hand, typically works alone and probably don't attend monthly screening meetings organized by the angel group. S/he may or may not ask for participation in management. The investment size would be smaller (<$100k/investor). Many of them are successful entrepreneurs (or climbed up the corporate ladder successfully). While their business card may not say that they are part of an angel group, they are genuinely interested in seeing innovations. Given the right idea and personality "click" with entrepreneurs, they want to invest in startups.
So, how do you pitch angels? Stay tuned.....

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