In the startup world, angel investors are some of the most important people that you can meet when you are first attempting to get a new venture off the ground. Angel investors can include just about anyone who’s willing to write a check of up to $250,000 for your early-stage company — including retired executives, serial entrepreneurs who have already cashed out big, and wealthy individuals (think doctors and lawyers) willing to take a real risk on an unknown company and an untested idea.
Of course, the Silicon Valley tech industry is filled with some famous names of angel investors — people like Esther Dyson and Ron Conway — who are known for spotting big ideas before they become Big Ideas. If you manage to secure angel investment from the likes of these, then you are also well on your way to lining up some follow-up VC investment money from some of the biggest names in Silicon Valley.
In your quest to line up financing from angel investors, you’ll probably run across the term “super angels.” These are angel investors who act a lot like venture capitalists. Unlike venture capitalists (who usually won’t touch any deals under $1 million), and angel investors (who typically cap out around $250,000), these super angels typically provide financing in the $250,000 to $500,000 range. Unlike most angel investors, who usually have full-time jobs, these super angels are professional investors. This is what they do for a living, and that’s why they’re harder to access for the average start-up. You can think of them as a type of junior venture capitalist — same job, but less money to play with. Some of these super angels even raise their angel funds that look, act, and invest much like more prominent VC funds.
And if you think that super angels are at the top of the angel investing food chain, think again. There are also “angel groups,” which are essentially formal angel networks where investors share deal flow and due diligence. In some cases, angels also pool funds, if the deal size warrants it. On average, angel groups have anywhere from 10 to 150 investors in them. These angel groups are pretty easy to find, mostly because they typically include some big-time investors who don’t want to stay in the shadows. In fact, a lot of mainstream business publications even maintain resources like the Angel Investor Directory from Inc. magazine. The U.S. SBA also makes it very easy to track down these angel groups. Every big tech hub has one or more of these angel groups.
There are a number of reasons why angel investors are looking to invest in new startups. For some older angels, it’s a way to “stay in the game” and see what’s going on in the tech world. For professional super angels, it’s a way to make a lot of money very quickly if they guess right on a company — they’re typically looking for a 10x return on their money in five years or less. And for wealthy individuals (like the proverbial “Millionaire Next Door”), it’s a way to have some bragging rights with their golfing buddies.
So when you reach out to these angel investors, try to understand in advance how they view their investment in your company. Often, they’re willing to invest with little or no due diligence, as long as they believe in you and your company’s vision. So choose your angel investor carefully. If you’re able to find the right angel investor early, it will make it much easier to get to the next stage of raising money: reaching out to the big-time VC funds that are looking to invest millions of dollars at a time.