Aug 29

Are there any safe investments today? 9

Angel Investing

For simplicity, angel investing is any investing that is not for one of the purposes listed above. Angels invest in businesses, individuals or even just an idea. The scope of investments is limitless. One common characteristic of an angel investment is it rarely involves a short-term, one-time sale.

The word “angel” investor came originally from wealthy investors to Broadway stage productions that banks and other financial institutions would not finance due to perceived unmanageable risks. The productions would run several weeks to a year or more, depending on its success.

It is through that period of the production run the angel investor earns income that eventually repays, hopefully with a profit. Once the production shuts down, the investment period is over.

Thus, angels typically take on much more risk than a banker. For that risk, angels require a much higher return rate on investment. Not all businesses can promise a high rate of return, so are not suitable for angel investing. Not all businesses are long term, either.

For instance, a company may be founded to promote the Olympics for a specific country. That company may be involved in events planning, marketing initiatives, any number of services. There could be sizable income generated in executing contracts and order fulfillment related to promoting events and services in and around the Olympics. But, that business as a concern essentially comes to an end when the Olympics ends.

This may be a reasonable type of short- to medium-term investment for an angel investor; and one that a bank may not finance due to the short-term and high risk nature of the investment.

But, angel investing involves dealing with businesses that have much less transparency than publicly traded companies, and higher risk than with businesses that have tangible assets like gold or real estate.

Jeff Hamilton’s paper on angel investing gives a much more thorough discussion on how to make angel investing more transparent, in order to be more successful, and is available here at the Technology Leadership website as an instant download: Knowing When Angel Investing is Good for Investor and Business Alike

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