Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups

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The Financial Life of a Startup

Where Angels Fit in the Big Financing Picture

THE WORLD OF startup businesses is enormous. How enormous? That depends on how you define “startup.” Take a college student who advertises her dog-walking services. She might consider herself a startup. So would a two-person team accepted into a tech accelerator to create a new social network. A 10-person, venture-backed, digital media company is still a startup. How about a 23-month-old iPhone app company with 13 people and no revenue? They're a startup too. But what if that 13-person company is named Instagram and has just been acquired for a billion dollars? Umm . . .

Each year in the United States there are millions of people starting up something (like a dog-walking service or an iPhone app) on their own. Of these, approximately 3 million actually incorporate their businesses. Of those, approximately 600,000 both incorporate and hire at least one person other than the founder.

How does one of those 600,000 employer businesses go from being a gleam in an entrepreneur's eye to a billion-dollar corporation? It's a process with many steps that the would-be entrepreneur needs to understand and master. But a potential angel investor needs to understand the process as well, since the angel plays a critical part in that process in an intelligent, productive, and effective way. So let's examine what happens at each step along the path of a startup as it grows from a speck of an idea into a living, breathing ...