RECENT NEWS from the Venture Capital Association in the United States shows that venture capital investment rose there by 23 per cent to an annualised rate of roughly US$20 billion dollars. This is good news indeed, not just for the US but also for the region, as it shows that the economy and investment are rebounding. Most people are aware of the venture capital industry and its role in building some of the information technology (IT) industry’s most important companies. However, fewer people are familiar with angel investment or the role that angel investors play in supporting new ventures, particularly in the US. Angel networks are characterised by an affiliated group of qualified investors that pool their resources, expertise and due diligence to fund high-growth potential, high-risk business ventures. The profile of a typical angel investor varies; they tend to be successful and semi-retired, but still very interested in business mentoring and making money.The benefits that angel investors bring are obvious when you look at some of their success stories. Successful angel-funded companies abound and include household names like Google and Starbucks. For instance, Google’s very first outside investor in 1999 was an angel investor named Ron Conway. A more mundane example is Sandpiper Networks, which helps publishers deliver content via the Internet; the company was purchased for US$630.5 million in 1999 and is now owned by Cable and Wireless – Sandpiper Networks was originally funded by an Angel Network in San Diego, California. According to University of New Hampshire research in 2007, angels invested US$26 billion in 57 120 ventures, which breaks down to about US$450 000 a deal. Put another way, angel investors sought to help 57 120 fledgling companies achieve their goals. On a per capita ratio basis, when applied to Barbados, this equates to 48 companies’ receiving US$21 million in funding every year. As exciting as that number is to local entrepreneurs, the point of my article today is to highlight the benefits to the investors, not the entrepreneurs. The bottom line is that investors invest to make money, not to make charitable contributions. Which begs the question, do angel investors make money? The short answer is yes, particularly if they spread the risk by investing as part of a network. A study of angel investors in the United Kingdom showed mean return of 2.2 times investment in 3.6 years and an approximate internal rate of return of 22 per cent gross. This is a very respectable average return, but most angels explain that money is only half of the benefit. Most report that they really enjoy helping young entrepreneurs succeed. For semi-retired members the ability to stay active in business without having to work full time is a reward unto itself. The competitive milieu of picking winners and helping them succeed and giving back by building a stronger economic base for the local economy are also often cited as reasons for becoming an angel investor. Regardless, few activities can be as personally enriching, figuratively and literally, as becoming a successful angel investor.BRYAN R. SWITZER is economic affairs officer at the United States Embassy in Bridgetown.
