A guest-blog by legendary business angel Brian S. Cohen
An angel investor is an individual who, using his or her own money, provides early-stage start-up capital to a new business and expects a percentage of ownership equity in return with the expectation of a sale or “exit.”
In the U.S., the term “angel” comes from the Broadway theater scene, in which investments by wealthy sponsors made lavish theatrical productions possible.
Like today’s business angels, these high-wealth individuals were looking for a little excitement in their lives as well as a return. Theater angels thought they were good at spotting new talent or recognizing the merit of intellectual property such as scripts and musical scores. Such investors often swooped in from lofty heights to save the show at the last minute.
Hence they were dubbed “theater angels.”
According to the U.S. Small Business Administration, there are about 250,000 active business angels in the U.S., funding about 30,000 start-ups a year. Angel investors annually commit $30–50 billion. There are over two million people in the U.S. with the discretionary net worth to make angel investments.
With every IPO such as Facebook, new angels are generated. Substantial angel and VC activity takes place in Europe, South America, and, increasingly, Asia.
WHY I’M AN ANGEL INVESTOR
You may be wondering why I am an angel investor. What’s in it for me?
A return on my financial investment is certainly part of it, but it’s much lower down the list of reasons of why I invest than many entrepreneurs might suspect. And based on the hundreds of angel investors I work with, I don’t believe my priorities are an exception.
I believe that it’s a privilege to be an angel investor working at the disruptive edge of ideas that could change the world. I believe that entrepreneurism is the embodiment of creating a newer, better world for my children. When people ask me about my faith, I reply that I believe in the entrepreneurial spirit.
The other day, I appeared on Your Business, the MSNBC program anchored by J. J. Ramberg. I was part of a panel of angel investors and she asked each of us to identify our political affiliations. One noted he supported the Republican Party; the other said he was a Democrat. They looked at me and I said, “Oh, I’m from the Entrepreneurial Party.”
So the biggest driver for me is the thrill of inspiring advising and mentoring, the brightest young minds in the world as they work incredibly hard to create something new and exciting. The chance of improving the world is what gets me up in the morning with a checkbook in my breast pocket.
RAISING EARLY-STAGE CAPITAL IS HARD
Starting a business by raising early-stage capital is hard, frequently disheartening work. I want to help.
Being a good listener is the first step. Entrepreneurs need someone to listen to, and in the end, someone to listen to them. I’d like to be available at both ends of the process.
Although I’ve been a full-time angel investor for more than six years, the core of my career has always been about start-ups.
At TSI, the public relations firm my wife and I built into one of the largest high-tech PR firms in the country, many of the clients I took on were just starting out. Even when we represented established clients such as IBM or Sony, they tended to be entrepreneurial-driven companies constantly launching new initiatives and products.
Another reason I am an angel is that my angel investors are some of the finest people I have ever met. My fellow New York Angels are now among my closest friends. I love how networking with other angels spawns smarter investments, more collegial relationships, and better-performing start-ups
I come at angel investing with a great sense of optimism, all financial evidence to the contrary. It’s very hard for an angel investor to make money. At this writing, after six years and investments in dozens of startups, my portfolio is looking very good.
Certainly as the first angel investor in Pinterest, I am in a very fortunate position. Thanks to Pinterest’s incredible success, I may see my initial investment multiplied by a thousand or more.
That will allow me to broaden my angel investing activities even more.
Brian S. Cohen is chairman of the New York Angels and the author of What Every Angel Investor Wants You to Know: An Insider Reveals How To Get Smart Funding For Your Billion-Dollar Idea (with John Kador, McGraw-Hill), from which this post is adapted. Cohen is the first investor in Pinterest. Over the past decade, he estimates he has considered more than 1,000 pitches for startups. More information about the book can be found at www.getfundedbyangels.com