shane - fool's gold; the truth behind angel investing in america (2009)

[...]... non-related investor, investing their own money alone or in syndication with other private investors.”7 These definitions confuse angel investing which does not include investment in businesses run by family and friends with “informal investing which incorporates both angel investing and friends-and-family investing This confusion is a problem because many people believe that friends-and-family investing. .. definition is right and then look at just the information that was gathered about investors and investments that fit that definition Defining angel investing isn’t going to be as easy as you might have thought from the recent article you read in Inc magazine WHAT IS ANGEL INVESTING? Before we go any further, I need to define angel investing An angel investor is a person who provides capital, in the form of debt... are willing to invest their time as well as their money in investing in private companies Forgetting the fairly sizable number of passive angels, these observers argue that coaching and helping entrepreneurs to run their businesses is a part of angel investing. 11 In practice, however, many angels are passive investors who provide little more than money to the companies in which they invest They do... of the editors of a major financial magazine; they put a picture of the entrepreneurs and the mythical angel, who believed in them and their idea when their business was nothing more than a piece of paper, on the magazine cover Inside, the angel and the entrepreneurs are interviewed for a story on the farsighted business angels whose prescience allows them to identify winning start-ups and drive the American... that investment was outdone by Iain McGlinn’s 10,500 times return on the 4,000 British pounds he invested in return for half ownership of the Body Shop.3 There’s only one problem with these fascinating, exciting, and uplifting stories about angel investing They don’t represent angel investing as it typically happens They are the rarest of rare events And because the stories of more typical angel investments... sometimes using the term “business angel to refer to the third of these three categories The phrase “fool’s gold” refers to the money that angels make by investing in start-ups But it also refers to iron pyrite, the shiny yellow rocks that miners sometimes mistake for real gold So is angel investing a source of gold for informal investors or worthless, iron-pyrite? The answer to that question is the focus... business And many policy makers focus their attention on increasing the number of business angels, under the belief that they finance the creation of the high-growth technology companies that create new and high-paying jobs But are these beliefs accurate? If you read most books, articles, or Web sites about angel investing, you would think so Most of the information you can find about angel investing. .. about angel investing Things like this: • What is angel investing and how is it different from other kinds of investing? • Should you become a business angel? • Should you try to raise money for your company from a business angel? • How big is the angel capital market and how many companies do angels finance every year? • How many people make angel investments and how often do they make them? • Who is the. .. dispensing with the money issue Some angels invest in start-ups to make money.36 For instance, one study of 230 business angels in Germany found that the desire to earn money was one of the top four reasons that people invest their own money in other people’s companies.37 The financial motivation for investing in start-ups is pretty straightforward People become business angels because they believe they... easily change; taxes explain little of the variation in angel investment activity across places • Angel groups are a small part of the angel capital market; accounting for only 1.8 percent of the companies receiving Introduction 11 angel investments, and 2 percent of the dollar value of angel investments made annually These are just a few of the things the data say about angel investing that most people . Congress Cataloging -in- Publication Data Shane, Scott Andrew, 1964– Fool’s gold? : the truth behind angel investing in America / Scott A. Shane. p. cm. Includes index. ISBN 97 8-0 -1 9-5 3310 8-0 1. Venture. sites about angel investing, you would think so. Most of the information you can fi nd about angel investing tells the story of the best investments made by the most expe- rienced, best-known, and. of the exciting and glamorous cream of the angel investing crop. Instead, I’m going to tell you about the typical investment made by the typical angel in the typical start-up that this investor