March 1, 2007
Angel Investor Groups and Deals

Angels. An “angel” is a professional investor who offers financial support to a seed or start-up company after the company has exhausted the support of friends and family, but before the company requires venture capital. Angels are most often accredited private individuals with an entrepreneurial background, but may also be funds.  Angels also offer personal support to a particular company in pursuit of angel investments and may have experience starting companies or operating established companies.

Angel Groups. The angel group structure efficiently matches investors with entrepreneurs seeking investments. Angels are more readily accessible to entrepreneurs, and the combined knowledge of numerous angels in a group more effectively screens entrepreneurs for appropriate investment opportunities. Angel groups often target particular industries or geographical areas, and the purposes of these groups may vary. Angel groups can assume different legal structures, including but not limited to the following: (1) non-profit corporations, (2) 501(c) tax-exempt corporations, (3) C corporations, (4) subchapter S corporations, (5) limited liability companies, (6) limited partnerships, (7) limited liability partnerships, and (8) informal arrangements.  
  
Angel Deals.

Entrepreneur Presentation
Angel groups attempt to create a steady flow of investment opportunities for angel members, referred to as “deal flow,” which can be achieved through use of service providers and online application by entrepreneurs, among other methods.  Groups conduct an initial screening of entrepreneurs and their respective companies to avoid investor exposure to inappropriate investment opportunities. During the screening process, angels may consider factors such as the nature of the company corporate structure and management team, contractual relationships, financial profile and operation, ownership of intellectual property and third-party validation.  Most angel groups have regular meetings, at which entrepreneurs will present business pitches. 
  
Screening of Investment Opportunities
After an entrepreneur has presented before the group of potential investors, the group or individual investors, depending on the group structure, will engage in financial valuation of the company, which may be accomplished by reference to book value, market value, income value or expected return on investment. After financial valuation, an analysis of legal documents, facilities, management structure and employees will be conducted, referred to as the “due diligence” process.  If the company survives these two latter phases of scrutiny, angels will consider making an investment. 
    
Actual Investment
After an investor has decided to offer financial support, the angel and the entrepreneur must determine the terms on which the angel is willing to invest and the entrepreneur to receive an investment. The understanding between these parties should be documented in a term sheet. Angel investors typically contribute between $25,000 and $100,000 in each company of their choice, and groups expect individual angels to contribute a certain amount annually to their choice of presenting entrepreneurs.

The two standard forms of investment are debt and equity.  A debt investment indicates that the investor receives no immediate compensation for a financial contribution, and such investments may be secured or unsecured, convertible or unconvertible. A private equity investment occurs when funds are contributed to a nonpublic company in exchange for an equity or debt security, such as preferred stock or notes. 

Investment may occur on an individual or a group level.  Investment on a group level often involves “pooled” funds. A fund indicates that funds of multiple investors are compiled to create a collective negotiating power. 

After Investment 
After making an investment, an angel investor may demand an active role within the company, such as a position on the board of directors, or simply request information rights, such as regular receipt of company reports and financial statements. Entrepreneurs should communicate with their angel investors regularly and in a timely manner, relaying quarterly updates, company progress, and issues.

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