Our experience tells us that different entrepreneurs look for different types of investors. Angel investors can provide the necessary funding for a start-up business. However, this process is not easy, and when entrepreneurs are finally able to raise the desired capital for their venture, they soon find out they are not compatible with their angel investor or the investors have unrealistic expectations of them. To avoid this discrepancy, business owners are strongly encouraged to learn about the different types of angel investors before they go about recruiting one. Being aware of all the different angel investor types will help the entrepreneur sort through the undesirable ones and choose the correct angel investor for them. Choosing a well-matched angel investor can make the difference between establishing a strong foundation for a company or a failing venture.
After years of meeting and dealing with investor we have found that investors usually fall in to one of these categories.
1. Typical Angels: Individuals with extensive business experience who have operated and owned successful businesses of their own. Their wealth was accumulated over their career. They are more hands on and can add a lot of value to the company in their input. They continue to be involved with high risk investments despite their losses. Angel investors like them possess a diversified portfolio that encompasses all industries, including public and private equity and actual estate. They serve as valuable mentors and advisors to their invested firms.
2. Trend Angels: Less experience than typical angels, but invest significantly in the latest trends of modern technology. Their investments primarily depend on the value of their other high-tech holdings, which can vary considerably. Many trend angel investors enjoy the risk of their deals as well as the exhilaration of bringing a novel technology to the market place. Some may even prefer not to be actively involved in their invested firms simply because they dislike dealing with the daily challenges of operating a business.
3. Numbers Angels: Primarily concerned with the financial reward of high-risk investments. Their motivation behind investing is their perception of what other angel investor gross income may be. Numbers angels tend to stay away from investing when market performance is poor and emerge once the market shows stability and improvement. They view each of their investments as another company added to their diversified portfolio and rarely become actively involved in the invested firms.
4. Corporate Angels: Former business executives from large corporations who have been downsized, have taken early retirement, or have been replaced. Even though profitability of their investment is their overall goal, they also seek personal opportunity when investing, claiming that they are looking for an investment opportunity when, in reality, they are really looking for a job. For instance, many corporate angel investors are known to invest in one company and seek a paid position, which is often part of the business deal.
5. Entrepreneurial Angels: Successful angel investors who own and operate their own businesses. Their steady flow of income allows them to make more higher-risk investments and provide a larger amount of capital for start-ups. They enjoy the personal fulfillment of assisting entrepreneurs launch a successful start-up and rarely take an active role in managing a company.
6. Enthusiast Angels: These angel investors are older (age 65 and up) businessmen who are independently wealthy before their investments. They often invest small amounts of capital in many different enterprises and view investing as a mere hobby. They also do not take an active role in management.
7. Analysis Angels: Considered to be serious angel investors. Even though many are born wealthy, the majority of these angels have acquired their success and wealth through their own independent and strategic efforts. They often demand a board position and are known to impose the same strategies they have used with their own companies towards their invested companies. Rarely do these angel investors seek an active management role, but tend to emerge and be more actively involved when their invested firms do not do well.
8. Professional Angels: These angel investors are professionally employed as doctors, lawyers, accountants, etc. who invest in companies in their related field. They may also provide services to their invested firm (legal, accounting or financial) at a discounted rate. Professional angel investors are of tremendous value for initial needed capital and rarely make follow-on investments.