Review
According to Robert J. Robinson and Mark van Osnabrugge, so-called business angels–those generally unheralded private investors who usually specialize in high-growth fields and often involve themselves directly in the endeavors they fund–now provide 30 to 40 times more financing each year than their more famous counterparts, venture capitalists. In Angel Investing, Robinson and Van Osnabrugge use personal interviews, anecdotal evidence, and more than 300 research st…
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When I began to raise money for my medical internet start-up I needed quick advice on the arcane world of angel financing. Angel Investing gave me all the answers from how to find investors to negotiating the deal as well as an understanding of complicated issues such as “convertible debt.” The appendix on Angel matching services is the most complete and best I have seen and the appendix on preparing a business plan is invaluable.
We successfully raised $800,000 and we are preparing for our first VC round. My only criticism is that the book should have been called Angel and VC Investing because it contains a wealth of information on VC fundraising as well.
“Angel Investing” by Mark Van Osnabrugge and Robert J. Robinson gives useful information about angel investors and venture capitalists.
Van Osnabrugge and Robinson estimate that angel investors–wealthy individuals who invest their own money into start-up companies–invest three to five times more money than venture capitalists and back thirty to forty times more ventures, making angel investors the primary source of external capital for entrepreneurs.
But, how do you meet and present your business idea to an angel investor? What factors do angel investors give the most weight to when debating whether or not to fund a venture? How do angel investors differ from venture capitalists when valuing a start-up company?
“Angel Investing” answers these questions and many more. It is stuffed with studies, interviews, and solid advice. “Angel Investing” can be divided into three main categories:
* General background about angel investors and venture capitalists and their relationship and importance to business and the economy.
* Practical advice for entrepreneurs seeking start-up funds from angel investors or venture capitalists.
* Practical advice for individuals considering becoming angel investors and making investments in small companies.
Each topic in “Angel Investing” is well documented. It’s a rather formal book, actually. Robinson is a professor at the Harvard Business School and Van Osnabrugge is a former fellow of the Harvard Business School.
I found the section about successful angel investment deals a bit too rich for my taste. For example, we learn that one angel investor who backed amazon.com got a 260 times return on his initial investment of $100,000 making him $26 million. Another angel who invested in the Body Shop received 10,500 times his initial investment. As a new angel investor, don’t get overly excited about the prospects! Remember, many angel investments fail dismally. As the authors point out, you must only invest money you can afford to lose!
If you are already a financially successful entrepreneur who considers becoming an angel investor, you might want to read “Angel Investing” to help improve the chances of making successful angel investments. However, the book is not a complete analysis of the due diligence process.
And, of course, from an entrepreneur’s standpoint, reading a book won’t automatically put you in contact with serious angel investors, and much of the real work in financing a new venture involves finding personal contacts to introduce you to appropriate angel investors. Van Osnabrugge and Robinson note that most funded ventures involve personal introductions.
Maybe, if you’re ready to invest $50,000 per company or more (and ready to lose $50,000 or more per investment!), you’re tired of investing in public companies (with mystic accounting and lack of reportability to the investor), and you want to add value to your investment by contributing information and contacts to your investment, this might be a good book to help get you started. On the downside, you’ll probably have no diversification and poor liquidity with angel investments.
The most important tip from “Angel Investing”: Do adequate research before investing in a company. And, it’s best if you know the industry and know business.
Peter Hupalo, Author of “Thinking Like An Entrepreneur.”
“Angel Investing” is a terrific reference for anyone preparing to seek early-round financing for a business. As the co-founder of a start-up, I have been searching for practical, real-world information on the capital market and the differences between the various options.
This book has been useful throughout my research. It contains an eye-opening comparison of Venture Capital groups and Business Angels. It also gives practical advice on what capital investors look for, what to include in your business plan, what to look for in an investor, as well as how to value your company and negotiate with the capital firms. I have found it invaluable and it has saved me countless hours in my search for seed money.
Although “Angel Investing” is not a bad book, it is important to realize that it is almost a decade old at this point, and times have changed quite drastically. (Robbie Robinson is now at the University of Hawaii, the bubble is long gone, and no current angels are getting 10,000X returns, among other things. 🙂
The world of angel investing, from both the investor and investee sides of the table, are quite different. Most of the angels who were investing when this book was written lost all their investments during the dotcom crash. Then, during the ‘nuclear winter’ that followed, angels began to invest again well before the VC market rebounded…but this time with a bit more savvy.
One of the biggest changes in the angel world in the past decade has been the emergence and growth of angel groups: organized associations of serious angel investors who pool their resources and experience (and funds, deal flow, and due diligence expertise) to make better investments than they would typically be able to do on their own. Indeed, there are now so many of these organized groups that they have their own coordinating body: the Angel Capital Association, North America’s professional association of angel groups, with over 200 groups as members. (There are also similar national and regional associations in Canada, the UK, Australia and Europe, among others.)
Another advance has been the development of a web-based platform that ties all of these groups and all of their investors together. Angelsoft, which now services over 19,000 accredited angel investors, provides the deal flow and group management infrastructure to nearly 500 angel groups and venture capital funds around the world, helping them process over 3,300 business plan applications each month.
If you’re an accredited investor who is considering becoming an angel (and note that this should be a truly considered decision: it’s highly risky, takes a lot of work to do correctly, and is completely illiquid with typically a 5-7 year holding period), the first thing you should probably do is find a local angel group near you and ask about joining. It’s a great way to get your feet wet, see interesting companies, and meet fellow investors who can help you learns the ins and outs of this specialized field. Angelsoft provides a comprehensive search engine including virtually every angel group around, along with a link to get information and/or apply for membership:
https://angelsoft.net/community/investor-search.seam
Good luck with your angel investments!