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Number of
Responses Category
7 $25,000 to $50,000
10 $50,000 to $100,000
5 $100,000 to $250, 000
7 $250, 000 to $500,000
2 $500,000 to $1,000,000
10 More than $1,000,000

We double-queried respondents on investment size by cross-checking
on the maximum investment they would consider placing into one venture,
and there was no significant deviation in size from their reports of actual
Seven percent of investments were $10,000 to $25,000. Twelve percent
ranged from $25,000 to $50,000. Seventeen percent ranged from $50,000 to
$100,000 per transaction. Eight percent invested $100,000 to $250,000.
Twelve percent of the respondents averaged $250,000 to $500,000 per deal.
Only three percent invested $500,000 to $1,000,000. And 17 percent in-
vested more than $1,000,000 per transaction.
We correlated the frequency and size of investment data, and an analysis
of actual transactions completed affirms a total of $91,815,000 in private
placement investments by just these 60 investors in the previous five years.
Furthermore, we asked respondents if they were willing to participate with
other investors in investment opportunities that exceed their preferred max-
imum personal investment. Fifty-two investors, or 87 percent, stated they
were willing to pool their capital with other investors. So their inclination to
participate with co-investors enhances the total capital financing capability
to entrepreneurs beyond the already substantial $91,815,000.
One of the objectives of this study was to attempt to gain a better un-
derstanding of angel and early-stage investor preferences. We asked respon-
dents about the age distribution or preferred stage of development of
investments that held their interest. The range of categories offered is below:

Number of
Responses Category
16 Seed. A venture in the idea stage or in the process
of being organized.
14 R&D. Financing of product development for
early-stage or more.
38 Start-up. A venture that is completing product de-
velopment and initial marketing and has been in
business less than two years.
Angel Capital in America: A Study

44 First Stage. A venture with a working prototype
that has gone through beta testing and is begin-
ning commercialization.
41 Expansion Stage. A venture that is in the early
stage of expanding commercialization and is in
need of growth capital.
5 Mezzanine. A venture that has increasing sales
volume and is breaking even or is profitable.
Additional funds are to be used for further ex-
pansion, marketing, or working capital.
10 Bridge. A venture that requires short-term capital
to reach a clearly defined and stable position.
4 Acquisition/Merger. A venture that is in need of
capital to finance an acquisition or merger.
7 Turnaround. A venture that is in need of capital
to effect a change from unprofitability to prof-

Respondents could select as many categories as they wanted, that is, they
were not limited to just one category.
If we define early-stage investing as encompassing the categories of seed,
R&D, start-up, and first-stage only, then of the 179 respondent selections
made, 63 percent preferred investment in early-stage. Growth capital to fi-
nance expansion of a business comprised 23 percent of responses, while 15
percent of selections were later-stage (larger transactions). This last group in
the study sample were overwhelmingly undertaken by the professional ven-
ture capitalists.
Investors in our study show diversity in industry preference. Investors
were not restricted, selecting as many industry categories as they were inter-
ested in.
Which business or industry category interests you?

Number of
Responses Category
5 Agriculture/Fishing/Forestry
15 Biotech/Pharmaceutical/Life Sciences
31 Communications/Publishing
37 Computer Software
12 Education/Training
14 Energy/Natural Resources
16 Environmental
22 Financial Services/Banking Insurance

Number of
Responses Category
4 Information Technology
7 Internet
26 Manufacturing”High Tech Products
23 Manufacturing”Industrial/Commercial
22 Manufacturing”Consumer Products
2 Material and Chemicals
33 Medical/Health Care
4 Optical
5 Real Estate/Construction
13 Recreation/Tourism
11 Retail Trade
22 Service”Technology Related
10 Service”Other
6 Transportation
6 Telecommunications/Wireless
11 Wholesale Trade

While respondents registered interest in all 24 industry categories of-
fered, investors displayed a preference for Software, Medical/Healthcare,
and Manufacturing. Financial Services and Technology-Related Services also
rated high. To a lesser extent, Biotech/Pharmaceutical and Life Sciences,
Environmental, and Recreation were next highest in preferred industries.
The interest in very high tech is driven by venture capital firms and corporate
investors. Reduced interest in the more esoteric technologies by angels may
be because of losses incurred after the dot-com bust, and reflect their refo-
cusing on industries with which they are directly familiar. We asked investors
what the nature of the relationship would be with ventures after they made
an investment. We wanted to better understand monitoring techniques in-
vestors might use to keep track of investee company performance, how they
envisioned adding value, and to what extent they saw themselves becoming
involved should problems arise.
To what extent do you normally expect to become involved with a com-
pany in your risk portfolio?

Number of
Responses Category
14 No involvement other than reviewing periodic
reports and attending stockholder meetings.
34 Representation on the firm™s board of directors.
Angel Capital in America: A Study

32 Provide consulting help as needed and requested.
14 Work part-time with the firm.
11 Work full-time with the firm.
10 Founders team.
0 Other

Investors could select more than one category. While 14 investors (23
percent) were passive investors, the majority sought more active involvement
as necessary. Fifty-seven percent wanted representation on the board of di-
rectors, a measure of “control” not unexpected given public and private
market results during the past five years. More than half (53 percent) would
provide consulting help as needed. Forty-two percent would be willing to
work in an interim capacity if needed, and 17 percent would consider in-
volvement directly as a part of the founder team.
Further about the extent of involvement, we asked investors in what
functional areas they were qualified and willing to provide management as-
sistance to investee companies.
Are you qualified and willing to provide management assistance in any
of the following areas?

Number of
Responses Category
29 Marketing
17 Production
8 R&D
2 Engineering
14 Personnel
38 General Management
9 Finance
1 System Development

Sixty-three percent believed they were qualified to provide general man-
agement assistance and would be willing to do so. Among the respondents,
all skill areas for venture start-up and development were present and”out-
side of very technical areas”significant percentages of respondents would
make themselves available.
Respondents with proximate geographic preferences in relation to the
venture™s location (on average, within 300 miles of where they live)
amounted to 23 percent. Sixty-five percent reported a preference for invest-
ments located within their home state. Twelve percent were willing to invest
anywhere in the United States. Follow-up interviews with investors in the

study suggest that some of them with a “state of residence” preference would
invest out of state if there were a lead investor in the network who lived close
to the company, someone able to monitor the deal, someone they knew, re-
spected, and trusted.
We also asked if the investors would consider making an investment
when the entrepreneur™s proposal was not supported by a complete business
plan. Overwhelmingly, investors clearly required a complete business plan
before investing, but early in their decision-making process, a comprehensive
executive summary would suffice to garner their attention.
We were interested in examining how large of a growth potential would
be required to attract venture investors™ interest. We asked respondents to
consider projected sales, five years out, and received the following results:

Please indicate a venture™s minimum annual sales projected five years
after financing that you would consider of interest. Check ONE only.

Number of
Responses Category
0 $100,000
1 $500,000
11 $1 million
4 $2 million
10 $5 million
9 $10 million
7 $20 million
2 $40 million
3 More than $50 million

Only 20 percent of the investors required the venture to have the poten-
tial to grow to $20 million in annual sales or more. Thirty-two percent
would be willing to invest if sales in five years ranged from $5 million to $10
million. Most important, a quarter of the investors (27 percent) would still
invest if the potential for minimum annual sales was $2 million or less. It is
crucial for entrepreneurs to appreciate the significance of these findings.
While it is true that to attract professional venture capital and corporate in-
vestment, the potential for huge minimum annual sales is mandatory. Such is
not the case with angels. Angels who believe they will get investment returns
that meet their targeted multiples and personal expectations may still be will-
ing to invest, even when liquidity options are limited as a result of gross rev-
enues, or when payback may come over time from building a sustainable
Angel Capital in America: A Study


While the reader needs to be circumspect in making generalizations of these
findings to the entire angel market, the fact that the 60-investor sample is
representative of a sophisticated angel and active early-stage investor net-
work cannot be denied. The random sample of 60 (4.4%) of ICR™s 1,359 in-
vestors provides real insight into one investor network, its investor
characteristics, investment preferences, investment habits, actual investments
placed, investors™ expectations for entrepreneurs, documentation, and re-
turns. By using data-based research strategies, entrepreneurs can better use
pools of investor resources, increase efficiency by better targeting the invest-
ment to appropriate investors, and increase their chances for fund-raising

What Do Private Investors
Look for in a Deal?


Positioning your venture for success in fund-raising mandates an apprecia-
tion for early-stage investors, particularly understanding angels, what they
look for in a deal, their investment criteria, their motivations, and their out-
come expectations. These are the critical elements entrepreneurs must un-
derstand as they target their deals to the appropriate investors. Targeting the
private investor means having the information to answer such questions as
these: Who would be interested? Who can afford it? Where are they located?
What is the best way to reach them? What message should I emphasize?
As we have demonstrated, private venture investors no longer represent
an invisible segment of the venture capital market. These investors form a di-
verse and diffuse population of individuals of means, many of whom have
created their own successful ventures. By providing early-stage financing for
start-up firms and growth equity for expanding businesses, these investors
fill a void in the institutional venture capital market. They look for products
and services in markets with significant growth potential while requiring re-
wards equal to the risks they incur. They will insist on clarity about when
and how they may cash in their investment. And they surely look for compe-
tent management, a point we cannot emphasize too much.
Another point we come to is how dependent this market is on individuals
with high net worth, the “wealthy,” those who possess something beyond
high incomes. A person with a high income may be affluent but not wealthy.


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