By David Drake
Angels seem to be everywhere these days.
A whopping 95% of the startups in the U.S. in 2012 were funded by angel investors. And the numbers continue to rise.
Angel investors, a.k.a. business angels, are affluent accredited investors, typically successful entrepreneurs or retired business people, who invest their own money informally in startup companies. To lessen the high risk involved, many angel investors join angel networks in which they share their knowledge and expertise, and pool their investment capital. The most sophisticated angels become known as “super angels,” insightful and well-connected players in the startup business space.
Citing a study by the Center for Venture Capital, the U.S.-based Angel Capital Association reports that angel investors funded 67,000 deals worth $22.9 billion in 2012, up 59% from 2011. VCs funded only 3,700 deals, 5% of the total (though these were worth $26.7 billion).
In Europe, meanwhile, the European Business Angel Network (EBAN) reports that angel investors funded 2,913 deals worth €5.1 billion (about $6.7 billion) last year, up 19% from 2011.
The trend for 2013 finds U.S. angel networks leveraging and embracing crowdfunding, as the U.S. moves toward legalized crowdfunding for equity in early 2014 under Title III of the Jumpstart Our Business Startups, or JOBS, Act. In Europe, too, crowdfunding has grabbed the attention of angel investors. The free access to curated deals and the automated technology (i.e., online due diligence) that crowdfunding platforms provide benefit angel investors in general, just as the platforms in turn benefit from the capital that the angels provide.
Angel investing is not for everyone. It involves very high risk, but the gains can be generous. In the case of Facebook, for example, investors in 2005 have reaped a return of 62,000%.
As an angel investor myself, I can say we are in this for the long haul. It’s not just about capital gains. It’s also about the joy of lending our experience, expertise and network to the startup ecosystem, and the pleasure of watching it grow.
David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City private equity advisory firm, and The Soho Loft, a global event-driven financial media company helping firms and funds advertise for investors. He is running the Real Estate Investing and Leading Crowdfunding Conference in NYC on Nov 14, 2013. Listen to him speak together with Barry Sternlicht of Starwood Capital who will give keynote. Details of the event can be found at: https://thesoholoft-real-estate-investing-newyork.eventbrite.com/. You can also reach him directly at David@LDJCapital.com