Characteristics of different types of Angel investors

Angel Investors fall into several broad classifications based on their experience and motivation in making investments. The four basic types of individual angel investors are value-oriented, deep-pocket investors, partner investors, barter investors, and socially responsible investors.

The basic types of angel investors vary in their degree of focus on return versus having fun and doing good. Value-oriented, deep-pocketed investors are the most focused on return. Socially responsible investors are least focused on return on investment. Rather, the socially responsible investor seeks the highest level of personal satisfaction and psychological rewards, which are least important to the value-oriented investor.

Value-oriented, deep-pocket investors are the most frequent and prominent type of angel investor, although most angel investors have a mixture of motivations that includes at least traces of all characteristics. Value-oriented investors seek attractive investments offering returns in the 50 percent range. They usually bring both substantial capital and practical business experience to the investment process. The practical business experience often comes from successful careers as entrepreneurs who built and sold at least one company or from careers as investment bankers. These angel investors want to be involved in the business, to have fun in the business, but not to run the business because they often make investments in several companies. They are quite willing to have their equity diluted as necessary to finance rapid, profitable growth. They have little emotional hesitation about selling the company to capture their profits.

Partner investors are usually buyers in disguise. Partner investors would typically prefer to purchase a company but lack the financial resources to do so. Often partner investors are affluent senior executives or former business owners re-entering the workforce and buying their last job. Consequently, these investors usually have a very high need for control and often want to be president of the company in which they invest. These individuals will normally invest in only one company at a time and expect to be deeply involved in its operation. They will be willing to sell the company if the sale generates enough capital for them to buy another business. Partner angels may, however, become attached to the operation and be reluctant to give up their chief-executive position. They also may offer the entrepreneur a way to exit the business.

Barter investors provide their investment in kind rather than in cash, usually offering goods and services the company would otherwise purchase with cash. These individuals want to invest in early-stage ventures and to participate in the company and provide management assistance. A business incubator, which provides office or other types of space and a variety of associated business services in return for equity in an early-stage investment, is the classic barter investor.

Socially responsible investors want to associate with individuals with high social and moral values in ventures addressing social needs. These investors seek a reasonable return, 10 to 15 percent, on an investment that supports their social values. They often enjoy inherited as opposed to earned wealth. They usually want to be involved in the venture but do not have the business experience and savvy that successful entrepreneurs provide. They are also likely to be distracted by many social obligations that make it difficult to devote extended periods to the investment’s operation. They may, however, have an excellent network of contacts.

In addition to these types of angel investors, there is the family angel investor. The family pools its resources and selects an astute, trusted, skilled family member to coordinate the investment effort. A family angel investor is very common in the Asian-American community.

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