Angel Investors

Interfacing with Other Funding Avenues

Angel investors often partner with other groups and organizations, which provide unique opportunities to not only obtain funding but to build a larger network of contacts.

While angel investors have typically invested more heavily in earlier-stage startups, this paradigm has been shifting in recent years. For example, angel investors have begun syndicating with venture capital to do expansion funding. Usually, expansion funding is the realm of the venture capitalist, where they provide second-stage financing. Venture capitalists are private investors who finance later-stage startups in exchange for equity, or ownership, of the company. Often labeled Series AA, B, C, D, etc., these funds are given to companies that have completed first-stage financing and have proven that they are achieving early business targets, such as product development, marketing, inventory, sales, revenue, and so on . In addition, angel investors have been partnering with crowdfunding platforms like Kickstarter to gain access to later-stage startup companies . Crowdfunding is when a group or an individual raises funds by collecting small amounts of money from many people, typically over the internet. Kickstarter is a public company based in New York that maintains a crowdfunding platform. As shown in Figure 1, from 2011 to 2012, there was a 7% decline in early-stage startup funding (a decrease from 40% of total angel investor funding to 33%), and a 14% increase in later stage deals (25% to 39%) .

Figure 1: Percent of Total Angel Healthcare Funding in Early-Stage vs. Late-Stage Startups.

Legend: Years are shown on the x-axis. Percent of total healthcare funding is shown on the y-axis.

Angel investors are trying not only to broaden their opportunities in later-stage startups but also to work with earlier-stage groups to provide seed funding for prototypes and proofs of concept. Angel investors often interact with friends and families to fund these groups, because of the laws governing capital requirements, which ensure that financiers hold a certain percentage of their assets so that they do not take on excessive leverage.