This video explains what angel investors are, who typically becomes one, and how angel groups operate. It covers the process of pitching to angel groups and how investments are made through them.
What this video covers
Angel investors are senior executives in big companies. They are highly successful entrepreneurs that are looking to give back, or perhaps like some other individuals. It could be service providers like lawyers, accountants, or people like that who are looking to put some money here and some money there.
Angel groups, you're going to find in different regions. You've got, for example, the New York Angels, or the Houston Angel Network, just to name a couple. But basically, the way they work is that you go, you pitch to them, or perhaps at first, you submit your application, or you get referred by someone. Then what you do is that you go and pitch in a pitch screening type of environment.
If you pass that pitch screening, then they will pass you over with some Q&A along the way, and with some due diligence, they would pass you on to what is called the actual get-together, the actual gathering of all the angels. They do this perhaps once or twice a month. What that means is that all the different members of that group are going to come together and they're going to invest in those companies.
The way that those investments work or the way that it happens is that either it can be a direct investment from the individuals themselves. It could be an SPV, which is a Special Purpose Vehicle, which is like an LLC, but a way to group all of the investors and to make those investments in the business as one rather than having multiple different individuals in your cap table, which is what records who owns what in the business.
The other way in which they're going to be making those investments is via a VC or a fund that they've created together.
The other angels or the other flavor of angels that we are seeing are the super angels. They are super-wealthy individuals. You typically see those that have been an entrepreneur in the past and that were able to get a really nice acquisition of their business.
Those individuals are investing from as little as 50,000 all the way up to 4 million dollars. They could either make the investments directly themselves or they have perhaps a family office, which is more like an entity that they have created with an investment team that is bringing all the different opportunities and placing bets on these different companies they think have potential.
Those are the super angels. In many instances, you have super angels maturing into becoming venture capitalists or perhaps those who open their own firms. You've seen examples like Peter Thiel, who put the first angel investment in Facebook. Now he has a VC firm and others, as well.
Those are the ones that are going to be placing the biggest checks. The angel groups, again, it ranges. It can go all the way up to 2 million. The angels are putting a little bit smaller checks, so that could be from as little as the LinkedIn angel investors, which are going to be putting $5,000 to the ones that are real angels that are going to be putting anywhere between 5,000 to $50,000. In some instances, you would see that going up to
00,000. That is the way that those different angels and the different flavors for channels in which they work.
Angels, for the most part, are investing in two rounds of financing, so one is the seed stage level. That first round that you are raising money for your business to get it up and scale it up.
Then the other one is going to be the Series A. The Series A is more as a way to continue expanding to achieving more milestones. But the Series A Round is where you start to see that blend between the angels, then the VCs, and then the VCs take it on, and they continue to invest with perhaps private equity firms down the line.
Something that is important is that when the angel investor invests, let's say at a seed stage or at a Series A they're going to continue to execute on maintaining their equity. They're going to do that via certain negotiations or certain clauses. That is the pro-rata rights, as an example.
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