Angel investment, unfortunately, means a lot of different things. Some people talk about $50,000 from two parents and an aunt as angel investment. For others, it’s $800,000 in seed money from a 35-year-old Internet winner who sold her first dot-com before the crash. I find myself referring to it as almost any investment that isn’t venture capital. That’s not right, either.
In the old days, we used to refer to it as “doctors and dentists.” Those old days were the early 1980s. I had a neighbor in Los Altos (in California’s Silicon Valley) who used the “doctors and dentists” channel to fund a series of really bad horror movies, none of which you’ve ever heard of, all starring one vaguely familiar washed-out actor. He made money on secondary distribution. And the doctors and dentists made money.
In the early 1990s, with the early versions of Business Plan Pro, we bundled a database of venture capitalists compiled by a company that made its real money selling the add-on database of angel investors. The VC lists had from 500 to 800 names. The angel lists had about 3,000 names.
Then I picked up some research which I posted here in April as recent demographics on angel investors, quoting the Center for Venture Research. More than 250,000 angel investors invested $26 billion last year. OK, things have changed.
I just read “Angel Financing” by Todd Vernon, CEO of Lijit, in his FalsePrecision blog. It’s a great post, laying out the world of angel investors by type first:
- The family investor: “Not really a classic angel investor at all but rather a supportive family member who ‘knows you’. ”
- The relationship investor: “One or more co-workers from a previous gig or business friends you have known for a while.”
- The idea investor: “Probably very familiar with the space your company is targeting . . . their investment is based on the idea and there is little emotion around the table (always good).”
- The once-removed investor: “Connected through a personal or professional relationship with either the relationship investor or the idea investor.”
Setting the angels into categories helps Vernon focus on the different kinds of knowledge, contributions and expectations of each. Of course there’s a range, from the family member who trusts you to the idea and once-removed investors who don’t even know you but probably know the industry.
He then goes on to talk about the size of investment, the mechanism, the payoff . . . it’s a good post.