Angel Groups in Action: Funding Early Stage Innovation

06/01/2005 7:00 PM KresgeDaniel Roach, Manager, Brown & Brown, LLP; Jeffrey Sohl, Director, Center for Venture Research ; Professor of Entrepreneurship and Decision Sciences, Whittemore School of Business and Economics, University of New Hampshire ; James Gerhwiler, Chairman, Angel Capital Education Foundation; Managing Director, CommonAngels ; Edward B. Roberts, '57, SM '58, SM '60, PhD '62, David Sarnoff Professor of the Management of Technology; Chair, MIT Entrepreneurship Center; Jerry Schaufeld, Former Director, Slater Fund; Founder and former Chairman of the MIT Enterprise Forum Description: Ralph Waldo Emerson wrote, "Every man contemplates an angel in his future self." Among these panelists, the aphorism might move more along these lines: "The experienced entrepreneur contemplates his future self as an angel investor."

First, the overview: Whether acting within a group, or as an individual, the angel investor in 2004 was responsible for pumping $22.5 billion into 48,000 ventures, according to Jeffrey Sohl. This compares to the 3,000 or so venture capital (VC) deals made in the same year, totalling $20.9 billion. And while the angel investor "tends to operate in the $50,000 to $1 million range," quite a bit less than the average VC deal, angels are essential for jumpstarting a new business. Angels are known for patience. That's because "angels are experienced business people and know how long it takes to build a company to the point of tangible outcome," says Ed Roberts. But it's not just their early stage significance that counts, he says. Angels are "in business not solely for the sake of return on investment 'They are people who want to participate in more than money. They want to get into the act of a close relationship with an entrepreneur."

Jerry Schaufeld describes angel investors' "ability and willingness to reach into the risk of an extraordinarily early deal," and how this motivates them "to contribute their experience into running and building these companies. James Geshwiler, who runs a group of like-minded angel investors, says, "It's hard to be an entrepreneur. To know that someone you respect and look up to in the industry says, 'You're doing something good enough for me to write you a check,' that's a huge psychological validation at a time when probably your friends, spouse and family are saying why are you doing this, why start a company?"
Host(s): Alumni Association, MIT Enterprise ForumTape #: T20080
Beta is T20081 and 20082


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