In todayâs business world, there are many types of angel investors with differing
personalities and motives. Despite this diversity, many angel investors fall into
three main categories:
Core angels– These investors are individuals with extensive business
experience who have operated and owned successful businesses of their own. Their
vast amount of wealth was accumulated over a relatively long period of time. They
are committed to their job of angel investing and continue to be involved with high
risk investments despite their losses. They possess a diversified portfolio that
encompasses all industries, including public and private equity and real estate.
They serve as valuable mentors and advisors to their invested companies.Â
High-tech angels– These investors may have less experience than
core angels, but invest significantly in the latest trends of modern technology.
Their investments primarily depend on the value of their other high-tech holdings,
which can vary considerably. Many high-tech angels enjoy the risk of their deals
as well as the exhilaration of bringing a novel technology to the market place.
Some may even prefer not to be actively involved in their invested companies simply
because they dislike dealing with the daily challenges of operating a business.
Return on investment (ROI) angels- These investors are primarily
concerned with the financial reward of high-risk investments. Their motivation behind
investing is their perception of what other angels gross income may be. ROI angels
tend to stay away from investing when market performance is poor and emerge once
the market shows stability and improvement. They view each of their investments
as another company added to their diversified portfolio and rarely become actively
involved in the invested companies.
Different types of angel investors
Corporate angels– These individuals are former business executives
from large corporations who have been downsized, have taken early retirement, or
have been replaced. Even though profitability of their investment is their overall
goal, they also seek personal opportunity when investing, claiming that they are
looking for an investment opportunity when, in reality, they are really looking
for a job. For instance, many corporate angels are known to invest in one company
and seek a paid position, which is often part of the business deal. They are also
known to have about $1 million in cash and may invest as much as $200,000 in a company.
Many can be extremely controlling once they obtain their desired position in the
invested company.
Entrepreneurial angels– These people are successful angel investors
who own and operate their own businesses. Their steady flow of income allows them
to make more higher-risk investments and provide a larger amount of capital for
start-ups. Entrepreneurial angels tend to make adequately-sized investments anywhere
from $200,000 to $500,000 and are known for investing more money into the same company
as the business progresses. They enjoy the personal fulfillment of assisting entrepreneurs
launch a successful start-up and rarely take an active role in managing a company.
Enthusiast angels– These angels are older (age 65 and up) businessmen
who are independently wealthy before their investments. They often invest small
amounts of capital (between $10,000 to a few hundred thousand dollars) in several
different enterprises and view investing as a mere hobby. They also do not take
an active role in management.
Micromanagement angels: These individuals are considered to be
serious investors. Even though many are born wealthy, the majority of these angels
have acquired their success and wealth through their own independent and strategic
efforts. They often demand a board position and are known to impose the same strategies
they have used with their own companies towards their invested companies. Micromanagers
will usually invest anywhere between $100,000 and $1 million for each endeavor.
Rarely do these angels seek an active management role, but tend to emerge and be
more actively involved when their invested companies do not do well.
Professional angels– These angels are professionally employed as
physicians, lawyers, accountants, etc. who invest in companies in their related
field. Professional angels invest in several companies at the same time, and their
capital contributions range anywhere from $25,000 to $200,000 per investment. They
may also provide services to their invested company (legal, accounting or financial)
at a discounted rate, but may be unpleasant to deal with and impatient at times
when it comes to their investments. Professional angels are of tremendous value
for initial needed capital and rarely make follow-on investments.
More kinds of angel investors
Head angels (aka âlead dogsâ)-These people are true
angel leaders who bring together and advocate other angel investors to a specific
deal. These head angels enjoy being the first in a deal and leading others to an
investment opportunity.
Mentor angels (aka âguardian angelsâ)-These individuals
serve as advisors and mentors to their invested companies. Providing insight to
a young company and mentoring entrepreneurs to achieve success is more valuable
to them than monetary rewards.
Generational angels (aka âsilver spoons with silver wingsâ)-These
investors are the second generation offspring of successful families. They are typically
younger than the average angel investor, but have acquired a significant amount
of business expertise from working in the family business.
Intentional angels (aka âdark angelsâ)-These angels
will invest and appear very interested in the company at hand. However, their intentional
motive behind their investment is to rid the founders and take over the company
at hand.
Typical angels (aka âarch angelsâ)-These angel investors
characterize themselves as the distinctive type of angel investor everyone has read
about, (i.e. high net worth investor, invests because of social responsibility and
community involvement, etc.).
Inexperienced angels (aka âcherubsâ)-These âbabyâ
angels have yet to establish experience and credibility in angel investing. They
often invest in what others commonly invest in rather than independently. When they
encounter adversity in the market, many will embrace the challenges and continue
angel investing throughout their lifetime, while others may simply feel intimidated
and give up investing.
Female angel organizations– In a male-dominated field, there has
been the emergence of women angel investor groups. Female angel networks primarily
focus on the educational facet of investing and advocate deal flow. Often times,
female angel syndicates focus on a variety of industries, not necessarily companies
managed by or owned by women.
Venture capitalists who are also angel investors (âmoonlight as angelsâ)-Some
venture capitalist firms may have strict rules, especially when it comes to independent
investing. While some VC organizations may enforce this policy, many do not. Sometimes
an investment may be so appealing a capitalist partner may decide to privately invest,
especially if the financial endeavor does not meet their firmâs parameters.
VC partners may even decide to co-invest in an attractive investment alongside their
firmâs financing. VC can also independently fund early stage investments,
only to have their firm finance the company during later stages of development.
The final reason why VCâs may moonlight as an angel investor is because they
may find investment opportunities that are not appropriate for their VC organization,
but can be a tremendous opportunity if they decide to independently invest.
Will work-for-equity angels (aka âsweat-equity angelsâ)-These
investors are service providers who have the intent of exchanging their services
for a percentage of shares in the company. When a young company takes advantage
of this type of service, they often save money in the long run. A problem that may
arise during this exchange is the entrepreneur may not realize the importance of
each portion of the equity, or the dilution (decrease in the percentage ownership
of a company in value and/or decrease in the economic value of an investment) that
may occur.
Non-company building angels (aka âtechnology angelsâ)-These
types of investors are primarily concerned with developing technologies rather than
building a diversified portfolio of companies. They are also known to assist entrepreneurs
to license these inventions.
Angel investors can provide the necessary funding for a start-up. However, this
process is not easy, and when entrepreneurs are finally able to raise the desired
capital for their venture, they soon find out they are not compatible with their
investors or the investors have unrealistic expectations of them. To avoid this
discrepancy, business owners are strongly encouraged to learn about the different
types of angel investors before they go about recruiting one. Being aware of all
the different angel types will help the entrepreneur sort through the undesirable
ones and choose the correct angel investor for them. Selecting a well-matched investor
can make the difference between establishing a strong foundation for a company or
a failing venture.