What do Angel Investments Look Like?

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This week I’m following on my earlier discussion of angel investing with some more information on what angel investments look like.

• Angel investment doesn’t always involve equity; data from a representative survey of informal investors show that 15 percent of angel deals are pure debt, and 40 percent of the funding that angels provide takes the form of debt.

• Research by Andrew Wong indicates that 40 percent of the equity investments made by sophisticated, accredited angel investors take the form of common stock.

• According to research by Professors Colin Mason and Richard Harrison, less than 21 percent of angel investments are staged.

• Research by Andrew Wong shows that only 5 percent of sophisticated, accredited angel investments have terms in which the investor can force bankruptcy or veto management decisions and only 2 percent have contingent board rights.

• Estimates based on data from a representative survey of informal investors indicate that two-thirds of companies that get angel money are worth less than $1 million at the time of investment.

• Estimates based on data from the Kauffman Firm Survey, a study of companies started in the U.S. in 2004, the valuation of the typical one year old company that has received external equity is only $171,000.

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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool’s Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.

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