Angel Investor Preferences Right Now
Angel investor dollars are flowing to startups. Here's what interests angel investors the most right now.
Good news for tech, software and other types of entrepreneurs seeking startup or early stage business funding: Angel investor groups are feeling more optimistic than they have in years, and investments are up 23 percent year-over-year, according to a first-ever survey of angel investor groups in the U.S. conducted by the Angel Capital Association (ACA) which included angel groups of all sizes and investment interests nationwide. What's more, the number of angel groups operating in the U.S. and Canada has jumped 67 percent in the last six years.The 2007 ACA survey is the best inside look at angel investor preferences ever done. So what most interests angel investor groups right now? By a big margin, angel leaders say they prefer to invest in seed/startup companies (80%) and early stage firms (85%), over expansion (22%) and later stage companies (5%). Interests span many industries, but these are today's top 10:
1. Medical devices
2. Software
3. Biotechnology
4. Business products/services
5. Electronics & instrumentation
6. Healthcare services
7. Industrial/energy
8. IT services
9. Networking & equipment
10. Telecom
Few angel investment groups specialize in a single industry, and most have interests and expertise among their member investors spanning a broad spectrum of business types. Geography, however, is crucial. Most angel groups prefer to invest in businesses based nearby. About half define that as within a 4-hour drive, and 25% say they'll consider anything in their region (midwest, southeast, etc.).
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Locate angel investor groups operating in your region
The Angel Capital Association (ACA) is a terrific resource. This fast-growing new organization is North America's premier prefessional alliance of angel investor groups, with over 200 angel groups representing some 2,500 individual angel investors.
Try: Visit the ACA site to see what this organization is all about. If you're a startup entrepreneur, the best part is that they offer free access to a member directory of angel investor groups. Groups are organized by angel regions, and the site provides links to individual angel group web sites.
Understand the differences between angel money and venture capital
For starters, angels usually invest personal funds, while venture money often comes from institutions. But there are many other differences.
Try: Check the Work.com Guides to Angel Investors and Finding Venture Capital for a grounding in how these two different sources of seed financing function.
Study angel group websites for valuable insights
Angel groups typically include some super-valuable information on their web sites, including must-read guidelines for startup entrepreneurs seeking financing, profiles of individual angels, information on businesses that have received funding in the past and crucial contact information.
Try: Just a few examples include BioAngels in Chicago, TechCoast Angels in California, the Jumpstart New Jersey Angel Network, New York Angels, and New World Angels in South Florida, among many others. For small-sum, tech startup backing, check out Y Combinator, a seed funding group that splits its time between Cambridge and Silicon Valley.
- Angel groups come in many forms, but generally share these traits: Members help screen firms and commit to a certain amount of investments yearly. Groups meet regularly (often monthly) to hear investor presentations. Member angels decide individually whether to invest in a business or not.
- While angel group sizes vary widely, investments typically range between $250,000 and $750,000 -- a level not generally served by venture capital funds.
- Angel groups typically look for co-founders (rather than individuals) and management teams who have proven skills and experience; a unique product or service with a competitive edge, large market and a clear, workable plan; evidence that you've invested substantially yourself; potential for a strong return.
- Once you locate an angel group, expect a lengthy process that includes an initial application, a "first cut" quick pre-screening, a full screen that includes one of the member's becoming your champion; a pitch meeting where you present to the entire group; and extensive due diligence.
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