Angel Investing: Matching Startup Funds with Startup Companies--The Guide for Entrepreneurs and Individual Investors / Edition 1

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Overview

They deliver more capital to entrepreneurs than any other source. And they often receive an incredible return on their investments. They're angel investors, some of the most important—and least understood—players in business today. The United States has close to three million angels, whose investments in startups exceed $60 billion per year. Some of our most successful companies were funded by angels—companies like Ford, AOL, and Amazon.com. But until now, little has been written about these angels, due in part to their preference for anonymity. Angel Investors provides an inside look at who these angels are and how they operate. It also shows would-be angels and entrepreneurs how best to find each other.
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Editorial Reviews

From the Publisher
"This is the best research on the angel capital market that I've seen. It should be read by every serious researcher in small business finance as well as students in classes in entrepreneurial finance, but it is also a must read for every entrepreneur who needs additional equity financing."--Robert E. Berney, chief economist, U.S. Small Business Administration

"Angel Investing is the definitive resource on an emerging new source of capital and talent. Van Osnabrugge and Robinson have assembled valuable information for entrepreneurs seeking capital and angels seeking startups."--Peter S. Cohan, author, Net Profit and The Technology Leaders

"Anyone interested in raising capital for a new enterprise should read Angel Investing to better understand the changing role of venture capitalists and the emergence of business angels as a growing source of risk capital and sound advice."--Ned Heizer, founder and first chairman, National Venture Capital Association

"this book will be of interest to potential investors, entrepreneurs, venture capitalists and institutional investors everywhere..."(Chartered Secretary, March 2001)

"The book is sensibly and logically structured, backed by exhaustive research with generous and helpful attribution to other specialists in the field." (Start Your Own Business, February 2001)

"...an interesting and informative book..." (M2 Communications, 12 June 2001)

Ned Heizer
Anyone interested in raising capital for a new enterprise should read Angel Investing to better understand the changing role of venture capitalists and the emergence of business angels as a growing source of risk capital and sound advice.
Robert E. Berney
This is the best research on the angel capital market that I've seen. It should be read by every serious researcher in small business finance as well as students in classes in entrepreneurial finance, but it is also a must read for every entrepreneur who needs additional equity financing.
Chartered Secretary
this book will be of interest to potential investors, entrepreneurs, venture capitalists and institutional investors everywhere...
Start Your Own Business
The book is sensibly and logically structured, backed by exhaustive research with generous and helpful attribution to other specialists in the field.
Booknews
Although venture capitalists have figured prominently, their counterparts<-->private investors, or business angels<-->have long been responsible for funding fledgling businesses. This volume is directed at both sides of the equation, teaching private investors how to make better investments, while also directing entrepreneurs to what financial sources are available, the differences between venture capitalists and angels, and how to attract investors to their start-up firms. Three appendices list resources, sources for matching funds, and describe how to write a successful business plan. Osnabrugge is a management consultant; Robinson teaches at the Harvard Business School. Annotation c. Book News, Inc., Portland, OR (booknews.com)
From The Critics
Quick, take a guess. Which source of funding has seeded more companies in the past 20 years: angel money or venture capital? If you chose the latter, you'd be wrong. "Venture capitalists get all the press today, but the majority of entrepreneurial firms are actually funded by business angels, especially those firms in their earliest stages," say Mark Van Osnabrugge and Robert J. Robinson in their ambitious new book, Angel Investing.

The authors argue, convincingly, that angels - private investors who take a long-term interest in early startups - fund 30 to 40 times as many companies as venture capitalists every year. The sum total of $50 billion in annual angel investment is three to five times that of total VC investment.

Both figures need a bit of footnoting. First, angel money naturally goes to a far greater number of companies than venture money. That's because angel investors put relatively small amounts into more companies at the early stages - long before VCs typically pledge their funds and expertise. And as for the size of the overall investments: Venture investments leaped to $17 billion last quarter, according to research firm Venture Economics. But don't let this blur the real story - the surge in VC investment has only reinforced the importance of angel investing. As the stakes of venture capitalists increase (the median stake doubled to $12 million last quarter), the importance of angels in nudging fledgling companies along (anything from healthy private companies to IPO candidates) is all the more critical.

But be warned: This book, which is packed with charts, tables and academic citations, probably won't keep you awake past eight at night. But then again, it doesn't claim to be a thriller. What it does do is deliver on its promise to tell you everything you need to know about one of the most overlooked and underanalyzed sources of investment capital in the economy.

The authors detail how the rise in angel activity is intrinsically linked to the surge in entrepreneurial activity over the past two decades. They compare the value of business angels to venture capitalists. And they provide more than 100 pages of information designed to help angels, with everything from a list of known networks to tips on writing a business plan.

The book's subtitle reveals one of its greatest strengths: It shows how to match a source of finance to your entrepreneurial venture. There is no single financing solution for every company, but this book does a thorough job of guiding entrepreneurs to the appropriate source. Van Osnabrugge and Robinson depict the startup process as a continuum, an entrepreneurial evolution comprised of distinct phases with specific funding and support needs, and they clearly show how to identify which phase a given company is in at a given time.

Angel Investing stands out from other financial books in its appeal both to those seeking angel funds and those who wish to become angels themselves. The authors also discuss the emergence of a new class of angel: entrepreneurs who have enjoyed huge success and wish to share their wealth and expertise. And they emphasize the added value that these patient, experienced angels often lend to a business.

Angel Investing will help guide business people on either side of the deal. And it should ultimately help those who plan to bridge both sides of this dynamic - those who can grow an angel stake into the sort of success that will enable them to someday become angels themselves.

From The Critics
Angel Investing: Matching Start-Up Funds With Start-Up Companies by Mark Van Osnabrugge and Robert J. Robinson gives useful information about angel investors and venture capitalists.

Van Osnabrugge and Robinson estimate that angel investors—wealthy individuals who invest their own money into start-up companies—invest three to five times more money than venture capitalists and back thirty to forty times more ventures, making angel investors the primary source of external capital for entrepreneurs.

But, how do you meet and present your business idea to an angel investor? What factors do angel investors give the most weight to when debating whether or not to fund a venture? How do you know if an interested angel investor is the angel for you and not some devil just waiting to take over your new company? How do angel investors differ from venture capitalists when valuing a start-up company?

Angel Investing answers these questions and many more. It is stuffed with studies, interviews, and solid advice. Angel Investing can be divided into three main categories:

General background about angel investors and venture capitalists and their relationship and importance to business and the economy.

Practical advice for entrepreneurs seeking start-up funds from angel investors or venture capitalists. Practical advice for individuals considering becoming angel investors and making investments in small companies.

Each topic in Angel Investing is well documented. It's a rather formal book, actually. Robinson is a professor at the Harvard Business School and Van Osnabrugge is a former fellow of the Harvard Business School.

I found the section about successful angel investment deals a bit too rich for my taste. For example, we learn that one angel investor who backed amazon.com got a 260 times return on his initial investment of $100,000 making him $26 million. Another angel who invested in the Body Shop and received 10,500 times his initial investment. As a new angel investor, don't get overly excited about the prospects! Remember, many angel investments fail dismally. As the authors point out, you must only invest money you can afford to lose!

Angel Investing helps entrepreneurs understand the little-known world of angel investors and venture capitalists. Also, if you are already a financially successful entrepreneur who considers becoming an angel investor, you definitely will want to read Angel Investing: Matching Start-Up Funds With Start-Up Companies to help improve the chances of making successful angel investments.

Of course, reading a book won't automatically put you in contact with serious angel investors, and much of the real work in financing a new venture involves finding personal contacts to introduce you to appropriate angel investors. Van Osnabrugge and Robinson notice that most funded ventures involve personal introductions.

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Product Details

  • ISBN-13: 9780787952020
  • Publisher: Wiley
  • Publication date: 5/2/2000
  • Series: Jossey-Bass Business and Management Series
  • Edition description: 1 ED
  • Edition number: 1
  • Pages: 448
  • Product dimensions: 6.40 (w) x 9.31 (h) x 1.49 (d)

Meet the Author

MARK VAN OSNABRUGGE is a consultant at Marakon Associates, a top-tier international consulting firm based in Stamford, Connecticut. A former fellow of the Harvard Business School, he is also the widely published author of articles about entrepreneurial finance. He lives in Chicago, Illinois. ROBERT J. ROBINSON is associate professor of negotiations at the Harvard Business School and an angel investor with experience in a variety of startup companies. He lives in Boston, Massachusetts.
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Table of Contents

FINANCING OPTIONS FOR START-UP FIRMS.

Funding Entrepreneurial Firms.

Bootstrapping Internally and the Challenges to Securing Outside Finance.

Types of Outside Investors Willing to Finance Growing Firms.

THE TWO MAIN SOURCES OF FUNDING: BUSINESS ANGELS AND VENTURE CAPITALISTS.

The Value of Business Angels and Venture Capitalists.

Harnessing the Power of Business Angels and Venture Capitalist.

Understanding the Investors' Structural and Personal Differences.

BUSINESS ANGEL AND VENTURE CAPITALIST DIFFERENCES THROUGHOUT THE INVESTMENT PROCESS.

Investors' Motivations and Investment Criteria.

Screening the Deal and Conducting Due Diligence.

Negotiating and Forming the Legal Contract.

Monitoring the Investment.

Exiting the Investment and Realizing Returns.

ATTRACTING BUSINESS ANGEL FUNDS TO YOUR START-UP FIRM.

Valuing Your Firm.

Negotiating the Funding Agreement.

BECOMING A SUCCESSFUL BUSINESS ANGEL INVESTOR.

Steps in Effectively Making Your First Investment in an Entrepreneurial Firm.

THE FUTURE OF THE BUSINESS ANGEL MARKET.

The Business Angel Market in the New Millennium.

PUTTING THE WHEELS INTO MOTION.

Appenxix 1: A Detailed List of More than Seventy Matching Services in the United States.

Appendix 2: Further Helpful Resourses.

Appendix 3: Writing a Winning Business Plan.

Glossary.

Bibliography.

Name Index.

Subject Index.

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