Chapter 16
Angel investing
16.1 WHAT IS ANGEL INVESTING?
As job growth and economic prosperity in both developed and emerging markets continue to become less dependent upon large firms, the economic importance of small firms is receiving increased attention. It is now accepted that the small-firm sector will provide the main vehicle for recovery from recessions and will be the main provider of jobs for the next decade at least. One of the most important considerations that new and small firms face in the transformation from entrepreneurial ideas to revenue-generating companies is the procurement of capital. Because traditional avenues of finance, such as debt, are often not available, young firms must seek risk capital by relying on two sources of outside equity: venture capital and business angel financing.
A business angel investor is a high-net-worth individual, who typically provides capital, in the form of debt or equity from his or her own funds to a small private business owned and operated by someone else who is neither a friend nor a family member. The term “angel investor” originates from the financiers of Broadway shows in the early 1900s. These were wealthy individuals who provided capital to help launch new theatrical productions. As patrons of the arts, these investors were considered by theater professionals as “angels.” Angels are informal investors, but not every informal investor constitutes an angel. Informal investors are made up of two different groups of ...
