About the Author: William Fisher, a partner at Treetop Ventures in Omaha, is a regular guest contributor to Silicon Prairie News. In his series, View from the FishBowl, Fisher calls on his experience as a business executive and technology investor to lend his advice to entrepreneurs in the Silicon Prairie.
Fisher has served as a director for several prominent public companies and private firms, and he currently serves on the boards of Prism Technologies, Lodo Software and FTNI. To read his full bio, including a listing of companies he has been involved with, visit treetopventures.com.
Contact Fisher at fish@treetopventures.com.
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Interesting question! If you get this question, probably the first thing you need to do is determine the context in which it is asked. Some of my wife’s friends call her “angel girl;” definitely a story for a different time. If you take a look at a dictionary for the definition, here is what you get:
An-gel [eyn-juhl] n.
- A typically benevolent celestial being that acts as an intermediary between heaven and earth, especially in Christianity, Judaism, Islam, and Zoroastrianism.
- A representation of such a being, especially in Christianity, conventionally in the image of a human figure with a halo and wings.
- Angels Christianity The last of the nine orders of angels in medieval angelology. From the highest to the lowest in rank, the orders are: seraphim, cherubim, thrones, dominations or dominions, virtues, powers, principalities, archangels, and angels.
- A guardian spirit or guiding influence.
- a) A kind and lovable person. b) One who manifests goodness, purity, and selflessness
- Informal A financial backer of an enterprise
Although it would be nice to be asked the question by someone looking for one of the “medieval nine,” questions I get are always using the informal definition; a financial backer of an enterprise.
In the hierarchy of funding for startups, angels typically fill the gap between “friends and family” and venture capitalists. Angels typically invest their own monies while venture capitalists are typically investing the pooled money of others (pension funds, private investors, banks).
Friends and family typically fill a role to provide capital after founders have invested their monies. It is typical that friends and family investors “top out” at several hundred thousand dollars. Most VC funds do not invest below a level of several million dollars. I was always confused by this. If you have a good idea and need less money, why isn’t this good? If the 10-person team at a VC is charged with investing say $750 million, then each partner would expect to try to find no more than 10 investments averaging $7.5 million each. Smaller investments take as much time (or even more) so the partner would end up with investments in around 30 companies to invest their share of the fund and they just won’t do it.
So, angel investors are one of the ways that founders bridge the gap between founders (with friends and family investing) and the minimum VC investment (say $2 million; this is what I perceive to be the absolute floor…I am seeing firms that I work with set minimums of $5-8 million).
Some other info:
- A Harvard study I read says that angel-funded startup companies are less likely to fail than companies that receive other forms of funding. This has to do with the involvement of angels as it relates to helping founders with contacts/advice, etc. (See: “The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis“)
- Angel investors invest annually as much or more than all the VC’s combined but into 15 times as many companies. (See: “Angel Investors Becoming More Cautious in Uncertain Economy“)
- Typical angel rounds range from several hundred thousand dollars with average investments of $25,000 each up to several million dollars. (Example: Founders invested $400,000 in Sojern and we raised $2.8 million in our angel round prior to going to the VCs).
- Angel rounds have high risk and the typical return these investors are looking for ranges from 30-40 percent over a 5-7 year holding period.
- Angel investing was born on Broadway and was the method used to fund theatricals.
- Areas of the country where startups thrive have a broad base of angel investors. Omaha should have a lot more than we do. This too shall pass as organizations like Silicon Prairie News and others get the news out on how entrepreneurial folks are in the area.
- Angel investors typically don’t do a lot of their own due diligence. Clearly, they have to like the business and the management team but they typically don’t do the legal/financial/regulatory review the way VCs do. (This is one of the things that firms like Treetop accomplishes for angels).
So…back to the question. Can you introduce me to an angel?
Angel investors are often retired entrepreneurs or senior executives, who may be interested in angel investing for reasons that go beyond pure monetary return. These include wanting to keep abreast of current developments in a particular business arena, mentoring another generation of entrepreneurs, and making use of their experience and networks on a less than full-time basis. I have found this to be exactly the composition of the angels I know in Omaha. Treetop has an informal group of around 80 angel investors who may (or may not) be interested in being an investor in any one deal; however, they use their business acumen from their area of expertise and try to leverage that into an angel investment locally where their contacts can help the startup be more successful. This group is growing; it has doubled in the past year as friends of friends contact us about looking at angel deals. We provide every member of our mailing list with every deal we feel that is of merit; some invest and some don’t. It is entirely up to them to decide which one makes sense for them to invest some risk capital.
Because there are no public exchanges listing their securities, private companies meet angel investors in several ways, including referrals from the investors’ trusted sources and other business contacts; at investor conferences and symposia; and at meetings organized by groups of angels where companies pitch directly to investors in face-to-face meetings. Silicon Prairie News and Tom Chapman of the local Chamber have been conduits for founders to meet various entities in Omaha that can help them find investors.
After we have taken a hard look at a company seeking investors, and after we have decided the business is worthy of an investment by us, we will then introduce the management team to our angel investors. The reason for this is simple; these are busy people and they don’t have the time to do what we do which is look at 100 companies to find 10 that might be at the stage that we can help with an investment to prune that list down to five that we dig into in order to make an investment in 2-3. We are not a broker-dealer and therefore we do not get paid by either the founders or the investors. It isn’t that we fit into one of the earlier definitions (think number 2 or 5 a-b above); we are investors also plus we want to help these firms with financial and other services to help them keep their overall expenses in check.
Can you introduce me to an angel? Sure. Let’s hear about your idea and the problem it attacks and why investors would love to be a part of it. Want to be an angel; happy to add you to our mailing list. Don’t like me or my Grandma; no problem. Find someone like us who can help and get in front of them and present your compelling story. Finding angel investors isn’t hard if you do your homework and you can present your idea in a way that compels investors to venture forth with some risk capital.
Editor’s Note: To learn about state legislation and our own efforts encouraging angel investing in the Silicon Prairie region, see our posts:
