The ATI blog reports today that at its Entrepreneurs’ Workshop last week Central Texas Angel Network founder and chairman Jamie Rhodes commented that for every company started by VC’s, 25 are started by angels.  I am either formally or informally advising a number of companies looking for angel funding right now, and I’ve found there are a lot of misconceptions about angel investors.  Unlike VC’s, where partners get management fees to put money to work and are highly motivated to do so, most angels don’t have to do any such thing.   The make investments only when something strikes their fancy and they choose to play.

In that vein, allow me to suggest some angel categories:

1.  Opportunists:  These are the people who know you (as opposed to people you know) and who may choose to invest when asked because they believe in your capabilities and your honesty.  They are betting on you to do your best to take care of their money and give them some return, and they may or may not even understand the business concept.  They will never appear in any organized investor forum or group, and they represent a shadow market of investors outside identified tech angels.  In Atlanta in particular I have seen many deals done in the past by successful real estate developers with cash to spare, although the downturn in that sector has made that quite a bit more unlikely today.

2.  Strivers:  The most likely angel investors in the opportunistic category are those who are still striving in their financial lives.   A $50K investment in your deal has the potential to “move the needle” for them in terms of some retirement goal or a future splurge.   And, they may well want to learn in the process, particularly if they are in corporate career tracks with little exposure to entrepreneurship.   In other words, don’t ask your $Billionaire friend who owns an NFL franchise for a few thousand bucks – except perhaps for your favorite charity.

3.  Execs with Checks:  Very often you will find an angel investor who has enough capital to buy himself a job by investing in your company and coming on board in a key role.  That can be a good thing, but it’s hard to fill out a round if your appeal doesn’t reach beyond that to true arm’s length investors.

4.  Spectators:  Every angel group has plenty of spectators who enjoy the comradery, the intellectual stimulation, and sometimes even a free lunch.  They will even acknowledge that they are not investing in tech deals.  But, they’re part of the scene and may well be connectors or influencers in your favor.

5.  Family Office Managers:  There are a few family office managers who choose to put some of their portfolios into local “alternative investments.”  They are probably working with family wealth that has entrepreneurial origins and have a soft spot for new ventures.   Unless the wealth was derived from technology, the odds are that they will favor more traditional business deals that don’t require any technical specialization to understand.  

6.  Deal Junkies:  I mean this as a flattering term, and there are individuals who have made good money in the tech sector and who have a genuine interest in seeding new deals, helping entrepreneurs, and keeping score by being part of new wins.  It’s very gratifying to be a very early investor in something that becomes big, not just for the money but for the satisfaction of helping build something of significance.  These angels are active check writers in their areas of comfort, but they are more likely to have some defined criteria and to be very selective.  They’ve learned how to say no to things that fall outside their zone.   And, they are not bashful about asking the tough questions.  They also can be very high value-add investors because they usually invest in areas where they have both expertise and connnections.

7.  Super Angels:  This category either has established a small fund or a strong cohort of co-investors that enable them to play well into Series A round fundings.  They generally invest with considerable discipline and also know how to ask the tough questions.  With today’s much lower startup costs for many types of tech businesses, these are the players who are capturing gains in an area that use to be the exclusive province of VC’s. 

Again, the important thing to remember is that angels choose to invest, and no matter how good your proposition may be, the outcome of that choice is always affected by an angel’s mood and life circumstances at any particular moment in time.  I have been in deals supported by many angel investors over the years, for which I am duly grateful, and I acknowledge that they are critical to venture formation.  It’s important for every entrepreneur to have some feel for the angel landscape.

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