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)
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.
