Angel investors willing to speculate on start-ups contribute billions to fledgling companies
The world is changing for angel investors, the ultra-wealthy looking for start-up companies to fund.
For decades, angel investors, who have an ultra-high net worth, have placed huge sums of money in the hands of start-up entrepreneurs, getting in on the ground floor of what they hope will be successful investments. The fact that they are extremely wealthy allows angel investors to take chances whether others might not be able to. They usually demand a high return on investment as reward for taking a chance on an unproven commodity.
The Center for Venture Research at the University of New Hampshire estimated there were 268,160 angel investors in the United States in 2012, with total investments of $23 billion in more than 67,000 companies.
But now, with the significant drop in start-up costs related to a similar decrease in technology costs, angel investors are able to get in to a company for as little as $25,000, according to a story by Financial Advisor. Smallbiztrends.com said average investment size has dropped from over $500,000 in 2006 to just over $300,000 in 2012.
FA revealed that the drop in cost for start-ups is such that a new relationship has been forged between registered investment advisors and angel investors.
While some angel investors operate solo, many angels are banding together in angel groups, who use expertise and contacts from different members to create a larger pool of resources and knowledge while spreading the risk involved.
Angel investors are not the norm even in terms of Ultra High Net Worth investors. A Spectrem Group study from the first quarter of 2013 found that among the UHNW ($5 million to $25 million net worth not including primary residence), 94 percent consider the level of risk with investments, the highest consideration of all. The reputation of companies where investments are made is a consideration of 76 percent of UHNW investors, and for angels, knowledge of the company is usually non-existent.
When asked to pick one concern, only 39 percent of the UHNW investor selected level of risk associated with investments. Twenty-six percent selected the tax implication of investments.
A 2012 Spectrem Group Perspective on investors with net worth over $25 million indicated they had 25 percent of their portfolio in what is considered alternative investments, which include private placements.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.