A 2006 national survey of angel investor groups actively investing in private companies revealed that 66% of their members do not actively invest because of their lack of knowledge of the process, not because the opportunity was considered too risky. When I heard this statistic and called the firm conducting the survey to confirm, I couldn’t believe that was the primary reason aggressive sophisticated investors didn’t invest in private companies. So many exciting emerging growth companies struggle to find growth capital from angel investors. On average, only 23% of the companies that qualify to be considered by angel investor groups actually receive investment. Although, there are many factors that drive this low percentage such as valuation of the company, structure of the investment offering, and validity of the business model, this study revealed that the biggest reason an investor doesn’t invest is completely outside of the control of the entrepreneur. The potential investors simply are uncomfortable with the process of private equity investment and their desire to participate does not supersede their fear of uncertainty.
Private Equity investing is a wealth creation strategy used by sophisticated millionaires. First championed by legendary aristocrats JP Morgan and J. Paul Getty, millionaires interested in wealth creation and not just wealth preservation, understand that by buying a companies’ stock at wholesale before the company goes public and then selling those stocks at retail prices produces the greatest return on investment. A $15,000 investment in Home Depot or Microsoft before they went public could be worth between $5,000,000 to $10,000,000 today.
I first became aware of the need for millionaires to learn about the private equity investing process when a few wealth managers and investors came to me seeking information on how to be an angel investor. I couldn’t believe there wasn’t information readily available. Yes, there were many books at the library or book store regarding private equity investing. Most are oriented toward the entrepreneur or read like a text book. I realized that very wealthy people don’t want to spend hours and hours reading theory on angel investing when they could be playing golf or spending time with their family. They want to learn how to take their experiences and apply that to private equity investing. Affluent people invest in private companies to make more money, of course, but also for the gratifying feeling of being able to point to a successful company and to be able to say they were a part of that success. Entrepreneurs are visionaries and angel investors are entrepreneurs that have the capacity to catch another entrepreneur’s vision and the generous nature to impart their experience and wealth to repeat their success in another entrepreneurial endeavor.
I found from talking to many investors that many of them learned about investing by doing or by being mentored by others. Unfortunately, during the dot.com bomb period, this translated into learning by losing. For investors today, that just isn’t acceptable. Affluent people who want to invest in early stage companies want a way to learn about angel investing the same way they might learn about investing in real estate or the stock market. They want books that are comprehensive, yet easy to digest and apply. They want to be able to attend seminars and workshops. They want access to the specific information they need to fill a gap in their experience and knowledge as it relates specifically to the art and science of angel investing. They want to be part of a group with other investors that is informal so it is flexible, yet structured so they have planned times to meet and review and consider opportunities. They want to have access to a team to help them perform due diligence on an opportunity. Private equity investing is new for many successful men and women who aspire to take a portion of their wealth and put it at risk to get a greater reward than what they can get through traditional investments.
The Network of Business Angels & Investors (NBA&I) offers an environment for those new to the idea of angel investing to come into a community of experienced private equity investors to share their experience and to learn how to apply their experience in traditional investing and real estate investing to private equity investing. NBA&I offers its members and guests access to e-books and workshops on topics pertinent to the world of angel investing.
Angel investors are a critical source of capital for early stage companies to go from start up to bankable or VC-able. Without a thriving angel investor community to bring their capital and experience to the aid of fledgling early stage companies, our economy will suffer because there won’t be small businesses to grow into big businesses. According to the same research report, angel investors invested $23.1 billion in 2005 and created 198,000 jobs. A total of 49,500 entrepreneurial ventures received funding in 2005, a modest 3.1% increase over 2004. The market is on an upswing and our economic recover can be even stronger with more investment in free enterprise and by helping wealthy investors to get comfortable with the process of private equity investing so that the number of investors that have a desire to invest and do invest grows from 33% to greater than 50%. That would mean another $10B could be invested into early stage companies adding at least another 80,000 jobs to our economy. The long term impact for wealth creation, job creation and economic growth is immeasurable.
Karen Rands spent the last 4 years, in the tough economic market, figuring out what works for the investors and the entrepreneurs and developing the curriculum necessary to educate a new generation of Angel Investors. To further her commitment to connecting investors with qualified companies, she launched the Launch Funding Network http://www.launchfn.com and acquired the Network of Business Angels and Investors http://www.nbai.net
Qualified investors are invited to join this growing national network of high net-worth individuals and sophisticated investors committed to providing experience and capital to worthy early stage companies. Entrepreneurs wishing to connect with angel investors should Register at LAUNCHfn. If you are interested in getting involved in a community of investors, please visit http://www.learntobeanangelinvestor.com to receive a free ebook: The 5 Secrets of Billionaire Investors.
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