RENEW Strategies

Part 2: The Rise of Angel Investors

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Matthew Davis, CFA
| February 8, 2012

We continue our series on "A New Strategy for Africa and other Emerging Economies" with a focus on angel investors.

In the coming posts we will try to answer the following questions: What is angel investing? Who are angel investors? What do they do? What are they motivated by? What role could they play in economic development? How can this role influence U.S. diplomacy and strengthen our global competitiveness? What is preventing angel investors from investing in developing countries? How is RENEW addressing these challenges?

So let’s begin with some short, simple answers that we can build on.

What is angel investing?
Angel investing has significantly grown over the last two decades in the U.S., Europe and other developed countries, and now rivals the venture capital industry in size. It is a form of investing that occurs at a critical stage in a company’s life, between founders, friends and family (FFF) and venture capital. Investments are generally $25K - $500K in size, and are categorized as “early stage investments.” If you are interested, the following five-page executive summary of OECD’s report titled Financing High Growth Firms – the Role of Angel Investing is an excellent read.

Who are angel investors?
Angel investors are high net worth individuals (HNWIs) who invest their time and capital in early stage, growth companies. Angels are often seasoned entrepreneurs and executives who invest as individuals or groups, in industries they know.

What do angel investors do?
In the U.S. in 2010, angel investors invested over $20 billion into 61,900 companies, compared with venture capital funds, which invested approximately $23 billion in only 1,012 companies (University of New Hampshire Center for Venture Research: The Angel Investing Market in 2010)

What are angel investors motivated by?
Angel investors are motivated by many things – seeing companies grow, mentoring entrepreneurs, shaping an industry, risk, making a return, creating an impact, etc. For the purposes of this series we focus on a motivation that combines the desire to create social and/or environmental impact with the more traditional motives: this is known as impact investing. A recent Aspen Network of Development Entrepreneurs (ANDE) survey found that a significant number of HNWIs are looking to make impact investments between $25,000 and $100,000, equating to a total market value of $35 billion (Impact Investments: An Emerging Asset Class).

So to summarize several takeaways:

  1. Angel investing is a huge industry that fuels the economy in developed countries by financing early stage growth companies (avg. 27 times more investments than venture capital).
  2. Angel investors have many skills they like to offer alongside their invested capital.
  3. Angel investors could invest up to $35B in impact investments.

Next week we will explore how angel investors could make investments in development countries and play a significant role as a new actor in diplomacy and development.

Contact us at renew@renewstrategies.com or follow us on Twitter @RENEWLLC to find out more.