-Written by Seunghye Shin
Hello, everyone! This is Frank. Have you ever heard about crowd-funding? Briefly, crowd-funding is a new way of funding mechanism using the Internet to network and pool money. It’s a great chance for young and creative entrepreneurs to promote their ideas and raise funds from investors. Here, the rich who invest in those entrepreneurs are called angel investors.
Then, who are angel investors? The term angel investor originally comes from Broadway, where it was used to describe the rich who provided financing for theatrical productions. As time went by, it is now used to describe the wealthy individuals who commit part of their portfolio in business start-ups. The recent Reynolds survey stated that there are currently 756,000 angel investors in the U.S. and the most dominating area for angel investments is undoubtedly Silicon Valley. Not only do angel investors provide money but also valuable management advice and important contacts since they mostly have held executive positions at large corporations.
For the past decades, angel investors have organized themselves into angel groups in order to access quality deals, which are not easy to gain unless you were affiliated to one of the angel groups. However, there are also disadvantages. When joining an angel group, you should commit your time to go to their events and network with the group. Also, there are requirements that members should invest a certain amount of money every year, which could be a burden for some investors. However, as mentioned earlier, nowadays, they get access to deals via crowd-funding which enables them to search quality deals at home without any limitations. In addition, crowd-funding platforms require the ventures to pass a certain process which makes angel investors easier to weigh up in which startups to invest.
On the other hand, this sort of investment is extremely risky because early stage companies are prone to fail. Thus, it is normal that this strategy doesn’t account for more than 10% of the investment portfolio. Despite the high risk, what angel investors look for is a great team with a good market: investing in the blue ocean market. Start-ups are the potential companies that are promising to make huge profits and angel investors expect them to return 10 times their initial investment in a period of 5 years. What if the ventures fail? Then, the exit strategies are for the most part through an initial public offering or an acquisition.
From the individual’s perspective, investing in the ventures is a rare opportunity for the investors of getting an enormous amount of return. In terms of society, as a whole, the angel investment is just like its literal meaning. It gives these ventures chances to present their brilliant ideas to the world and they, in turn, can create jobs which will vitalize the national economy. Therefore, angel investing should be promoted and a proper environment should be provided as well.
-Seunghye Shin (firstname.lastname@example.org)