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Angel Investing: some tid bits! (Part 1 of 4)

I thought it might be interesting to recognize the size, scope, reach and the importance of the angel investors. (This is part 1 of 4).

If you have ever picked up a phone and called someone, you need to thank an angel investor for making that phone call possible.

In 1874, a young Alexander Graham Bell was searching for money for this strange gizmo that would transmit voice over wires. Most investors adopted the prevailing opinion, as summarized in an editorial in the Boston Post, “well-informed people know it is impossible to transmit the voice over wires and that were it possible to do so, the thing would be of no practical value.” Bell did not have huge personal resources or a company with any tangible assets to provide collateral.

Angel investors Green Hubbard and Thomas Sanders of Salem, Mass., put up the equity capital to start the Bell Telephone Company of Boston. They took a chance on upcoming, promising but unproven technology; the exact same thing that most angel investor do today.

In the United States angels invest more dollars in more companies than the formal, or institutional, venture capital market. They are the largest source of seed and start-up capital for entrepreneurs.

Jeffrey E. Sohl, is Director of the Center for Venture Research at the Whittemore School of Business and Economics at the University of New Hampshire, has gathered some interesting stats.

In 2005, in the United States, angels invested $23.1 billion in 49,500 ventures or approximately $470,000 per deal.

In contrast, during this same period venture capital funds invested $22.1 billion in 3,008 deals, for an average of $7.4 million per deal.

In the seed and start-up stage, the difference between angels and venture capitalists is even more stark. Close to 55 percent of angel deals in 2005 were in the seed and start-up stage, while venture capitalists allocated a mere 6 percent of the deals to these stages. Even during the best of times venture capitalists, over the last decade, have never invested more than 15 percent of the deals in the seed and start-up stage. In fact, in 2003, the VC group invested a mere 2% in the seed and startup companies.


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February 14th, 2007 Posted by Sunny Kalara | Venture Capital | 2 comments