Angel Investors are the start up company’s best friend. Some say they are called “angels” because they are an answer to the entrepreneur’s prayer for money to get their business launched.
Angels are the financial fuel of the economy. Before Venture Capitalists get involved, before banks will loan a company an unsecured note; Angel Investors provide the capital that fuels the entrepreneurial spirit and helps inventions become products and ideas become reality.
Angels are wealthy individuals who provide seed capital and growth capital to companies in start up and early stage of their company’s lifecycle. Their capital can be offered in exchange for equity in the company or as some specialized form of debt facility. Investing in this stage of company is the most risky, but it can also be the most rewarding. Rewards come not just from the financial returns, but also from experiencing the purest form of capitalism…bringing value to the market by supplying a product or service to satisfy a market demand. There is a definite sense of pride and accomplishment from being able to say you were an early investor in a block buster like MicroSoft or Starbucks, and surprisingly, there is little regret from the early stage investors in the near misses like WebVAN and PETS.com because they got their sizeable returns. That is how it works for the wise angel investor.
Investing or buying Private Equity of early stage companies is one of the secrets the wealthy use to create more wealth. As Robert Kiyosaki says in his book, Rich Dad’s Retire Young, Retire Rich on page 127, “the rich invest in shares of a company when the company is still a private company” This course (www.howtobeanangelinvestor.com) will teach you how to identify and screen opportunities for early stage private equity investing so that you have potential to reap the rewards of those early investors who took the risk and invested in MicroSoft or Home Depot.
An individual is considered an “accredited investor” when they have sufficient income ($350,000 combined household income) and/or accumulated wealth of over $1 Million.
Angel Investing is the industry term used to describe when a private individual invests money into a start up or early stage company before that company is public. High net-worth men and women provide needed capital to entrepreneurs that cannot go to a bank to get because their company is still unproven. Just about every company that ever went public, had at one point in time attracted the investment growth capital from individual investors. And even in the case of flame out companies like WebVan, the angel investors in that deal made their money because they bought their shares at a lower valuation, say $1.00 a share, so that when the company went public, at say $25 a share, that investor made 25X their investment. A $100,000 investment in a company such in that example, became $2,500,000. That is how the rich get richer. But it is never a sure thing so an angel investor must also be prepared to lose the full $100,000 if the company fails to execute on their strategy and go out of business before a liquidity event happens. This is partly why the SEC regulates private equity investing in non-public companies and tries to ensure that only accredited investors make that type of investment. Accredited investors have enough income or accumulated wealth that the government assumes they should know if an investment is good or not.
I’m in Vegas for the Thanksgiving weekend. Their Sunday paper had a great article “Going Public not Easy” http://www.lvrj.com/business/11801851.html . It covered many of the ins and outs of going public and the new rules that will go into affect in December regarding Sarbanes compliance for OTCBB companies. Used to be that OTCBB companies were the good alternative for angel investors wanting a company to produce a liquidity event but not wanting to incur the high cost of a traditional IPO and the length of time it takes for a company to reach a point to be worthy of trading on the NYSE. It seems a lot of that incentive will change when the new rules go into effect. Ultimately, this will continue to add fuel to the acquisition market. Traditionally, over 80% of the exits for angel investors have come through acquisition, whether from a private equity fund or a straight acquisition by another company. The likelihood of a merger acquisition buy out being the way an angel investor will get their liquidity will continue to grow as the demands of the regulatory issues grow for public companies. When a company goes public, private investors owning shares in the private company can then sell their shares to the public. When a company is acquired, the source of the acquisition is buying the private shares of the company at the company’s current valuation or an industry accepted formula such some multiple of the EBITDA. Big notable acquisitions such as the YouTube acquisition are based on a perceived value, rather than a profit measurements. One point made in the article that is relevant for angel investors seeking their liquidity event is that when an aquisition is made through the transfer of stock (like when a public company buys a private company), capital gains are avoided. There is a downside to that, as we saw during the dot.com collapse, if the public company’s stock falls in value, then the actual value of the aquisition also falls.
Hello, Thanks for visiting My Virtual Angel World. Angel Investing is a sophisticated way to create wealth. It isn’t for the faint of heart. It is how the wealthy get wealthier; the rich get richer. It is how $30,000 in stock can become $180,000 or $1,800,000. It is also how $30,000 can go out the window or down the drain. All investments, even public stocks as we saw in 2001 with the collapse of great companies such as Enron, and real estate as we are seeing now, have the potential to lose all of an investor’s money. Once an investor has developed a level of sophistication to look beyond the suggestions of their stock market advisor, or their financial planner, they can start to look at fundamental process of buying a stock at wholesale….before they go public…leading to the maximum return on investment. This blog was started to provide a place for those interested in angel investing as a wealth creation strategy to come learn from other investors and to gain unique insights into the angel investing community. Please join the community and contribute with your questions, your knowledge, and your experiences.