The Effects of Angel Investment on Incubation and Regional Economies

What do college students with brilliant ideas, entrepreneurs with revolutionary products ready for expansion, and veteran business people with substantial assets and a history of financial performance that exceeds current levels have in common? The common thread among these innovators is that they are not able to obtain financing through traditional lenders such as banks.

Some might say that businesses in this category are living on a wing and a prayer. Others might say that what they need is a guardian angel. Fortunately there are groups of investors that have banded together to profit from investing in promising businesses that are not yet attractive to banks or venture capitalists.

“Appropriately, these investors are known as Angels”

Angel investment plays a vital role in the financial enablement of incubation level businesses like start-ups and those that are ready to emerge from business incubators like Innovation Pointe. Angels have also begun to recognize value and invest in fundamentally sound businesses that are experiencing difficulties due to the present turmoil in the financial markets.

Just how large and widespread is Angel investing? According to the Angel Capital Association there are over 300 organized bands of Angels in the United States whose investments total nearly $600M per year. There are over 13,000 accredited Angel investors in these networks. Angel investors took 2,100 equity positions in “non-bankable” American businesses last year and expect an aggregate return on investment of 35% per year.

These investments range from seed money for start-ups deemed to be worthy to infusions of capital to revitalization of existing businesses with high growth and value potential. The average investment for an Angel is about $250,000, but the range can be from as low as $10,000 to syndicated deals that exceed $1M.

“For Angels, there’s no place like home”

Angels are typically high net worth individuals who place a great deal of importance on improving the communities and regions that have positively impacted their own businesses and lives. It is not unusual for an Angel Investment Network to restrict investments to a certain geographic region. Angels of this preference have been quite effective in the positively impacting the economic development of their home regions by investing in businesses that create wealth and jobs which in turn elevate a regions livability and lifestyle amenities. Angels of course expect a return on their investment.

“Angels provide sage advice for tomorrows Superstars”

Young businesses often do not have connections or the financial resources to secure the advice and services of the best and brightest minds. Emerging businesses also have a difficult time assembling a board of directors. Angel Investors in many cases are entrepreneurs themselves and are perfect candidates to become mentors or board members for the businesses that they choose to invest in.

“Incubators as a source of Angel deal flow”

Business incubators are constantly in seeking ways to assure the continued success of companies that are at or near the time for their graduation to the real world. This is also a critical time in the financing cycle of those businesses. The very products and services that promoted the growth that allows these businesses to reach critical mass to graduate, often makes the need for outside advice and capital essential to enhancing their potential for profound future successes.

The most frustrating thing for Angel Investors is to have insufficient opportunities to invest in worthy local businesses. Without deal flow, Angel Investment groups cannot function. Businesses ready to graduate from business incubators are many times perfect candidates for investments by Angels. The rigors of the incubation process, prepares these businesses to offer Angels the ROI that they seek.

In some cases the investments that the Angels make are instrumental in keeping these businesses in the place that they also call home.

Hadannah is a business consulting firm that helps business owners and management make important decisions on strategy, operations, product or service offerings, mergers and acquisitions, technology, and organization. Hadannah subscribes to the basic principle that our consultants must measure their success in terms of our clients’ financial results. Companies in transition that aspire to create wealth and transform their business models like to work with us. We are an action oriented firm that identifies opportunities for enhanced performance of our clients, and provides practical advice that works in a down to earth, friendly and approachable manner.

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Companies that recognize that there is a constant need for innovation, optimization, and constructive change whether large, mid-sized, start-up or even non-profit make ideal clients for Hadannah. Hadannah examines each client business from a CEO perspective. We ask the right questions and dig deep into the numbers to mine practical solutions to the problems that keep business owners and managers up at night. We strive to make a profound positive impact on each client business.

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