November 1, 2010

Where are innovative startup entrepreneurs turning for financing these days? Venture capital has gotten tougher than ever to come by in recent years as VCs have become more conservative in the types of investments they make. Enter a new breed of investor: the “super angel.”

Halfway between traditional angel investors and venture capitalists, super angels combine the traits of both in a way that makes them well-suited to help today’s innovative entrepreneurs. Knowledge@Wharton recently took a look at what’s going on in the super angel arena. Here’s what you need to know:

• Like angels, super angels are often former entrepreneurs. What’s different is that many of them came out of groundbreaking tech companies, such as Google and PayPal, giving them insider insights into what makes innovative business ideas succeed or fail.

• Unlike angels, who invest their own money, super angels pool their money with that of friends, family and wealthy private investors. This means they typically invest more than angels, but less than VCs. Most super angels manage funds of $10 million or less; their investments in individual companies range from tens of thousands of dollars to $1 million, but usually fall below $500,000. 

• While VCs focus on companies at many stages of development, super angels generally concentrate on seed-stage businesses that can prove their viability in six months to a year. They are looking for innovative ideas and startups that can run lean and mean.

• Super angels invest in industries with low startup and operating costs, including: mobile and web-based software, social networking tools and platforms, and Web-based advertising and media.

• Super angels are highly active. One angel cited in the article invests in an average of four firms a month; another says funding 60 companies a year is not unusual.

Because of this high rate of activity, super angels are more likely to sell a business quickly—which has led some VC experts to criticize super angels for not giving entrepreneurial innovation time to mature. The evidence doesn’t support this claim, according to Knowledge@Wharton. Here’s why: because they invest less to begin with—super angels don’t have to look for a huge payoff the way VCs do. True, they may sell a company quickly to reap a profit—but they may also hang on for years until the company is ripe for exit. Super angels were among the first investors in Twitter and Facebook, and are still invested in both companies.

Related Topics

• Money

Related keywords

Anita Campbell, Article, funding, angel investor, venture capital, financial management, startups, Small Business Trends

Join the conversation ( 6 )

• Anita Campbell 1 year 6 months and 21 days ago

  

  Thanks, Adam, for sharing that resource. I will take a look. I think it's important for any entrepreneur who wants to convince an investor to invest in his/her business to be able to persuasively communicate about the business. After all, as entrepreneurs our number one job is really sales -- and in this case you're "selling" the future promise your business has to the investor. A business plan clarifies one's thoughts and crystallizes the communication.- Anita

• Adam Hoeksema 1 year 6 months and 21 days ago

  

  Anita I really like the idea of participating on VC and Angel blogs. I have already made some great connections for my startup, ExecutivePlan, by using that very strategy. Great Advice!The problem is getting your startup in front of these super angels. According the the Angel Capital Education Foundation only 1 to 4% of angel investment applicants successfully raise investment. I believe the most important tool for startup entrepreneurs is a powerful business plan executive summary. That is why I recently wrote an published a short 11 page ebook on How to Write a Powerful Executive Summary. It is free for download at www.theexecutiveplan.com along with a number of other free executives summary templates, examples and tools.

• Anita Campbell 1 year 6 months and 22 days ago

  

  Hi Martin, Well if you look at the example of Fred Wilson (A VC Blog), his advice is for those seeking VC funding to participate on the blogs of venture capitalists. If you apply that same idea to angels, then it might be a good idea to do some searches for blogs, Twitter accounts, etc. of those who self-identify as angels or belonging to angel groups. I'm not sure you'll be able to distinguish super-angels from your garden variety of angel (because few angels identify themselves as "super" angels), but at least you might find some angels through social media. And then who knows where it leads?- Anita

• Anita Campbell 1 year 6 months and 22 days ago

  

  Hi TJ, I think it's harder to do a Kiva-style microcredit movement and have a widespread difference in the United States. Reason: the small amounts that Kiva deals in tend not to make as big an impact on startups. $1000 or even $5000 doesn't go far -- in my business that's a small fraction of my monthly expenses. Whereas, in a third world country even a few hundred dollars may be a huge sum, yet a small amount for someone in the U.S. to risk giving as an investor.- Anita

• Martin Lindeskog 1 year 6 months and 22 days ago

  

  Is it time to start believing in "angels"? :) Do you think that this new type of investor will come from the social media sphere in a big way?

• TJ McCue 1 year 7 months and 1 days ago

  

  Hi Anita, I'm no super angel, but I did pool my funds with some other angels to invest in a startup and keep looking at others, too. I think you've hit on the coming wave in this trend. Thanks for pointing out some of the variations and opportunities. I keep wondering if there's going to be a Kiva-style micro-credit move in the USA.TJSalesKickstart.com