Different Types Of Angel Investors
In today’s business world, there are several types of angel investors with differing personalities and motives. Despite this adversity, a lot of angel investors fall into 3 main categories:
1. Core Angels. These angel 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 and they are committed to their job of angel investing and continue to be involved with high risk investments despite their losses. Angel investors like them 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 firms.
2. High-tech Angels. These angel 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 angel investors 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 firms simply because they dislike dealing with the daily challenges of operating a business.
3. Return On investment (ROI) Angels. These angel investors are primarily concerned with the financial reward of high-risk investments. Their motivation behind investing is their perception of what other angel investor gross income may be. Return on investment 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 firms.
The Different Types Of Angel Investors
1. 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 angel investors 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 firm.
2. 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 angel investors 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.
3. Enthusiast Angels. These angel investors 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 many different enterprises and view investing as a mere hobby. They also do not take an active role in management.
4. Micromanagement Angels. These individuals are considered to be serious angel 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 angel investors seek an active management role, but tend to emerge and be more actively involved when their invested firms do not do well.
5. Professional Angels. These angel investors are professionally employed as doctors, lawyers, accountants, etc. who invest in companies in their related field. Professional angels invest in many 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 firm (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 angel investors are of tremendous value for initial needed capital and rarely make follow-on investments.
Angel investors can provide the necessary funding for a start-up business. 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 angel investor or the investors have unrealistic expectations of them. T o 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 investor types will help the entrepreneur sort through the undesirable ones and choose the correct angel investor for them. Choosing a well-matched angel investor can make the difference between establishing a strong foundation for a company or a failing venture.
