“Angel investor groups vary in structure, from formal to informal. Formal groups follow strict participation requirements that guide members’ minimum investment activity and event attendance. Some groups pool members’ capital to make investments on the group’s behalf, while others allow individual members to invest in specific deals of interest.
A typical angel group’s investment ranges widely from $150k to $1.5MM per deal, depending on how many group members are interested in the deal. While no two angel groups operate exactly alike, most angel groups maintain a local or regional geographic focus in order to maximize members’ ability to actively engage in the growth of their investments. Angel groups often have web sites that provide directions for business plan submission. After screening business plans for top-quality deals that match the group’s criteria, these groups organize regular monthly breakfast or dinner meetings for members to hear pitches from companies selected to present. If the group (or members of the group) decides to proceed, interested members commonly collaborate on due diligence and deal negotiation. Based on the group’s structure, investments are either made directly by individual members, or by the group as a whole. Most groups apply standard terms to their investments, with some flexibility to negotiate.
Angels typically invest between $10k and $100k per transaction individually, and up to $1.5MM as a group. They invest in one to four transactions per year. On average, angels are patient, with an average term for holding an investment of eight years. For the risk and added value they provide, angels seek returns of at least ten times their investment.
MIT’s Entrepreneurship Center identifies four types of angel investors:
Bring both entrepreneurial and industry expertise. Many have been successful entrepreneurs in the same sector as the new companies in which they invest.
Have experience starting companies but come from different industry sectors.
Offer industry expertise – often from experience working for large, established companies – but may lack first-hand experience with the travails of a startup.
Typically invest purely for a financial return.