The Importance of Angel Investing in Financing the Growth of Entrepreneurial Ventures

Investigation of the role of angel investing in financing private businesses in the US is important. Many observers consider angel investments to be one of the key drivers behind the startup and growth of new businesses (Council on Competitiveness, 2007), despite a paucity of information to con firm whether or not this is true. Unlike venture capital investments, angel investments are made by individual investors who do not make up a known population. Therefore, much of what is reported about angel investing comes from anecdotes and surveys of convenience samples, which are prone to biases and inaccuracies. Moreover, research on this topic is plagued by de finitional confusion, in which di r erent investigators confound informal investors, friends and family who invest in startups, accredited and unaccredited angel investors, and individual and group investing; this confusion makes it difficult to compare findings across studies. This report seeks to provide an accurate understanding of the role of angel investing in the entrepreneurial finance system. It de fines angel investing and reviews the current state of understanding of the phenomenon, focusing on answering four questions: (1) How large is the angel capital market? (2) How much demand is there for angel capital? (3) What are the primary characteristics of angel investments? (4) What do the companies that receive angel financing look like? It answers these questions by reviewing the literature, providing a statistical evaluation of data sources drawn from representative samples of known populations, examining new non-representative surveys of angel investors, and comparing the results of these new analyses to previous studies of non-representative samples of business angels.