What Are Angel Groups?

Abstract

Abstract This chapter examines a recent development in angel investing: the emergence of organized angel groups (efforts that combine the start-up investment activities of multiple accredited investors in a coordinated way). The oldest of these angel groups is believed to be the Band of Angels in Silicon Valley, which began in 1994 with twelve members and, in 2006, had 105 members and $7.2 million invested in twelve companies. The newness of angel groups means that they are essentially unexplored in other books on angel investing, even though they are a unique form of investing in private companies. As this chapter will show, angel groups are very different from individual angels. All members of angel groups are accredited investors, making group members wealthier than the unaccredited investors who make up 79 percent of all business angels. Moreover, angels in groups differ from individual angels on a variety of dimensions, including their demographics, the amounts of money they provide, the industries they favor, their preference for debt and equity instruments, the terms of their contracts, their tendency to get follow-on investment from venture capitalists, their expected and actual rates of return, and so on. In fact, angel groups may be more like venture capital firms than like individual angels. These differences make angel groups important for entrepreneurs, angels, and policy makers to understand.