When wealthy individuals get together as an organized group, they are all able to benefit from the resources of the entire membership. Angel Groups are structured organizations of individuals who have a strong desire to invest in entrepreneurial companies. The “angels” work together to find great deals in hopes of achieving a higher than average return on the investment.
What does it take to qualify as an “angel” investor? According to the SEC, angel investors must satisfy certain requirements and be accredited. They are typically individual investors with high net worth. The whole rule is created to protect persons from a higher than normal risk.
The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:
a bank, insurance company, registered investment company, business development company, or small business investment company;
an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
a charitable organization, corporation, or partnership with assets exceeding $5 million;
a director, executive officer, or general partner of the company selling the securities;
a business in which all the equity owners are accredited investors;
a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
For more information about the SEC’s registration requirements and common exemptions, read the brochure, Q&A: Small Business & the SEC.
http://www.sec.gov/answers/accred.htm
It is very interesting to find out that the term “angel” came from the City of New York where they were describing wealthy individuals who supported funding for Broadway plays. A professor from the University of New Hampshire who founded the Center for Venture Research first began to use the name. He was describing the high net worth individuals that were providing seed capital for the start-ups.
A lot of angel investors are retired executives who have accumulated wealth as an executive or entrepreneur. The very reasons they invest go far beyond just trying to get a nice return on their investments. They are persons who are excited about what they do, and have an appetite for assisting others and developing successful start-ups. One of the great aspects to having an experienced angel investor provide funding to your start-up is their wise knowledge.
A lot of professional angel groups are put together for the purposes of pooling assets. Since only a low percentage of these deals pan out, it is good to spread the risk around. Another thing is that when a deal does work out it typically takes a longer time horizon than your average investor is willing to be patient. These groups also like to research their investment opportunities together so that no one person is over-burdened with due diligence. Finally, many groups allow entrepreneurs to directly pitch them as a group face to face which enhances the entire overall funding success.
Written by Edward Cambas – Capital Matchpoint.
To learn more go to www.capitalmatchpoint.com
A great resource for additional info and statistics –www.angelresourceinstitute.org
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