This may be the best time in years for an investor to become an angel. But that doesn’t mean you should rush out to get yourself fitted for wings and a halo.
An angel investor is anyone who privately provides capital to a promising business, often a start-up, that isn’t run by a friend or family member. Scott Shane, an economist at Case Western Reserve University in Cleveland, estimates that the U.S. has at least 140,000 active angels who collectively invest some $20 billion a year in new businesses.
Right now, the rationale for becoming an angel sounds almost heavenly. Commercial and industrial lending by banks, the lifeblood of small and medium-size businesses, has dried up, falling 13% over the past 12 months. And the money raised by venture-capital funds, another leading source of financing for start-ups, is down 67% from last year. That has presented unusually attractive opportunities for outsiders who can provide financing.
Catherine Mott, president of BlueTree Allied Angels, a group of 43 wealthy angel investors in Pittsburgh, said one local high-tech start-up has orders for several million dollars’ of goods from national distributors, but banks won’t lend it the working capital to make its products. So the start-up is willing to give local angels an equity stake in exchange for cash to manufacture goods that are all but certain to sell, a situation that Ms. Mott, a former commercial banker, called “amazing.”