2.
Re: What is an Angel Investor? Jun 15, 2008 2:52 PM
Adding on to the definition above, angels typically invest their own money, and are one of the three largest sources of real risk capital in the United States. They are often the
only source of substantial risk capital for an entrepreneur.
When a new business enterprise is launched, the source for the seed money is most often "4F funding" (founders, family, friends, and fools). 4F funding actually accounts for the
majority of the investments that are made in new small businesses each year -- tens of billions of dollars. Once a business is operational, however, few entrepreneurs can raise enough
additional capital from 4F sources to expand the enterprise -- even one that has excellent potential.
When a large business confronts this problem, they often seek help from
venture capitalists (or VC firms). VC firms pool other people's money into a professionally-managed fund, and then invest that money to fund major business expansions. Because it takes almost as much effort for VC firm to research a small business investment as a large one, and because small businesses are generally perceived as riskier propositions, VC firms tend to invest in larger enterprises.
That leaves a large gap between 4F funding and venture capital. Angels fill that gap. Although they're not as well-known as venture capitalists, angels actually invest
more in American businesses, in total, than VC firms do.
Hope that helps.
