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Several years ago Bryanne Leeming had little more than a promising business idea and a prototype for a device to teach kids how to code through recess-style play. Today her Boston-based start-up has 10 employees, and its initial product, Unruly Splats, is used by schools in 45 states and six Canadian provinces.
Leeming’s company, Unruly Studios, has clearly benefited from the demand for innovative ways to teach science, technology, engineering and math (STEM). But it may not have come so far so fast without the help of angel investors, an increasingly critical source of capital and other support for high-growth start-ups.
Earlier this year, Unruly Studios landed $1.8 million in seed funding from the eCoast Angel Network and other angel groups, Amazon’s Alexa Fund, as well as other investors. The capital allowed the firm to more than double its staff — adding experts in education, sales and marketing — and thus position itself for even faster growth.
Angel investing is hardly new, but it has attracted a lot more interest lately.
Why? The hit reality TV show “Shark Tank” has no doubt shined a light on the once esoteric practice, but more importantly, investors have deeper pockets these days, thanks to the longest economic expansion in U.S. history, which has produced legions of cashed-out entrepreneurs looking to stay involved in the start-up scene.
Angels are typically high-net-worth, accredited investors who buy equity stakes in fast-growing start-ups, and as part owners are often involved in strategic decisions. In recent years, however, less-affluent investors have begun to participate in angel investing via equity-crowdfunding platforms — such as SeedInvest, StartEngine and Republic — although certain federally imposed limits still apply to them.
“The world is now awash in money for early-stage start-ups,” says David Rose, a third-generation angel investor and founder of New York Angels, one of the country’s oldest and most active angel groups. Rose is also chief executive officer of Gust, an internet platform that connects accredited investors with early-stage companies.
According to the University of New Hampshire’s Center for Venture Research, the number of active angel investors grew by 16% in 2018, to 334,565, over the prior year, although the total amount of capital deployed (about $23 billion) declined slightly. The number of ventures that received angel funding last year rose by about 7%, to 66,110, over the previous year.
Wondering if you have what it takes to land an angel? Do you know where to find one or whether you even want an angel involved in your business? Here are five tips to help you navigate the world of angel investing.
1. Angel groups are a good place to start your search.
Made up of angels with varying levels of investing experience, such groups have proliferated in recent years, in part because they allow members to pool their capital to do larger deals and work together to evaluate opportunities. Rose estimates that there are about 400 angel groups in the U.S. alone. You’ll find links to hundreds of angel groups — along with some links to platforms that connect accredited investors and start-ups — in the Angel Capital Association’s membership directory.
Many angel groups invest in start-ups within specific geographic areas and/or sectors. Canada’s North Ontario Angels, for instance, is a nonprofit that connects the entrepreneurs within the region with accredited investors. The group’s members have invested more than $101 million ($133 million Canadian) in early-stage companies, much of that going to firms in the tech sector.
Some angel groups have a social bent. Pipeline Angels, for instance, not only seeks to boost the number of women in the field of angel investing but also to supply capital to women and non-binary femme social entrepreneurs. Since April 2011, nearly 400 members of the group have graduated from its angel investing bootcamp. In all, its members have invested more than $6 million in some 70 companies, including Unruly Studios.
With so many angels from which to choose, how can an entrepreneur identify reputable angels with strong track records?
For starters, check an angel’s references by talking to the last couple of entrepreneurs who have done deals with that angel, suggests Jeffrey Sohl, director of the University of New Hampshire’s Center for Venture Research. You may also want to search reputable databases, such as PitchBook and Crunchbase, for information on specific angels. Some databases are free to use, while others may be available through library platforms.