The Role of Angel Investors In Financing Innovation

and Start-ups

Kimberlie Cerrone

What is an angel investor?

• Someone who is investing her own money

• Usually, but not always, angels participate early - in the first/second “outside” investment round

• Angels determine their own investment strategies and processes

• Angels can ignore their own investment strategies and processes

Why be an angel investor?

• Financial returns

• To work with entrepreneurial companies

• To give back to their communities

• To apply the expertise and experience gained during their careers

• To spend time with entrepreneurs: the smartest and most talented, focused, and ambitious people in society as they’re changing the world, and in doing so creating new products and services, jobs and wealth

How to be an angel investor

• Individual vs. Group vs. Syndicate

• Groups impose discipline

• Combining deal flow leads to more and better opportunities

• Combining investment capital leads to better financed companies

Kimberlie’ Rules

• Companies need local angels with relevant expertise and connections

• My check gets cashed last

• Invest in the team, not the plan

• Don’t invest in a plan without the team

• No jerks

• Don’t break my own rules

How Important is Angel Funding?

• Definition of “early stage” in venture capital has gotten later and later

• Bridging the financing gap between F&F (<$3-500k) and earliest stage VC funds (>$1-2M)

• Companies that start with angel investments have a significantly better chance of succeeding (says Harvard and the Kauffman Foundation)

• Angels invest about the same amount of total investment capital year after year as VCs (in the US)

• Angels invest in 15x the total number of startups than VCs

Can public sector funding replace angel investments?

• Maybe, sometimes

• But it takes too long to qualify for it

• Non-dilutive public money usually supplements angel and venture capital, but does not displace it.

My observations

Entrepreneurial ecosystems cannot thrive, or support an expanding venture capital community, without having a robust angel community.