How Angel Investors And Angel Groups Work - YouTube

Hello, everyone. This is Alejandro Cremades. Today we're going to be talking about angel

investors and also super angels. Angel investors, at the end of the day, are going to be those

individuals that are going to be investing in the early stages of startups. Angel investors,

you're going to find them in different flavors. You're going to have the angel investor itself.

You're going to have the super angel, and you're going to have angel groups.

As a fun fact: angel investors, the term comes from those that used to finance the Broadway

shows. These people were putting in money and not expecting anything in return. That's

why they're called angel investors because, obviously, those investments were not so lucrative.

When it comes to angel investors, those are individuals that are investing in a company

for many different reasons. Either just the returns, paying it forward, also because many

of these guys have been entrepreneurs in the past, or maybe to go to a dinner and be cool

in front of their friends and family.

The other thing, obviously, is to diversify their portfolio. Typically, angel investors,

the allocation that they put for risky investments like startups is not more than 5% of their

portfolio.

When it comes to the different types of flavors of angel investors, you have the individual

angel investors. Again, those angel investors are not the ones that have the title Angel

Investor on social media platforms like LinkedIn or Facebook. Those individuals are only going

to be putting a very small ticket, and they're going to be a waste of your time. I highly,

highly, highly recommend that you stay away from those.

The angel investors are senior executives in big companies. They are highly successful

entrepreneurs that are looking to give back, or perhaps like some other individuals. It

could be service providers like lawyers, accountants, or people like that who are looking to put

some money here and some money there.

When we go to angel groups, those angel groups essentially were brought into place so that

those senior executives could have a place where they could meet and where they could

also discuss potential deal flow.

Now, with the internet, those angel groups are not needed as much as they were needed

before because now you can get access to all types of investment opportunities. We live

in a world that is super connected and very transparent. For that reason, I think angel

groups are not on the high rise as they used to be. Perhaps they have maintained themselves

there, but again, they're a great way for entrepreneurs to go pitch their business,

and to perhaps get some money.

Angel groups, you're going to find in different regions. You've got, for example, the New

York Angels, or the Houston Angel Network, just to name a couple. But basically, the

way they work is that you go, you pitch to them, or perhaps at first, you submit your

application, or you get referred by someone. Then what you do is that you go and pitch

in a pitch screening type of environment.

If you pass that pitch screening, then they will pass you over with some Q&A along the

way, and with some due diligence, they would pass you on to what is called the actual get-together,

the actual gathering of all the angels. They do this perhaps once or twice a month.

What that means is that all the different members of that group are going to come together

and they're going to invest in those companies.

The way that those investments work or the way that it happens is that either it can

be a direct investment from the individuals themselves. It could be an SPV, which is a

Special Purpose Vehicle, which is like an LLC, but a way to group all of the investors

and to make those investments in the business as one rather than having multiple different

individuals in your cap table, which is what records who owns what in the business. Otherwise,

it becomes a cap table mix or a spaghetti mix.

The other way in which they're going to be making those investments is via a VC or a

fund that they've created together. This is something that we're starting to see more

and more as we go because people are starting to be more sophisticated where it comes to

the ecosystem and the universe of investing in startups.

The other angels or the other flavor of angels that we are seeing are the super angels. They

are super-wealthy individuals. You typically see those that have been an entrepreneur in

the past and that were able to get a really nice acquisition of their business. Now, they

have a lot of capital to invest in companies.

Those individuals are investing from as little as $250,000 all the way up to 4 million dollars.

They could either make the investments directly themselves or they have perhaps a family office,

which is more like an entity that they have created with an investment team that is bringing

all the different opportunities and placing bets on these different companies they think

have potential.

Those are the super angels. In many instances, you have super angels maturing into becoming

venture capitalists or perhaps those who open their own firms. You've seen examples like

Peter Thiel, who put the first angel investment in Facebook. Now he has a VC firm and others,

as well.

Those are the ones that are going to be placing the biggest checks. The angel groups, again,

it ranges. It can go all the way up to 2 million. The angels are putting a little bit smaller

checks, so that could be from as little as the LinkedIn angel investors, which are going

to be putting $5,000 to the ones that are real angels that are going to be putting anywhere

between $25,000 to $50,000. In some instances, you would see that going up to $100,000. That

is the way that those different angels and the different flavors for channels in which

they work.

Angels, for the most part, are investing in two rounds of financing, so one is the seed

stage level. That first round that you are raising money for your business to get it

up and scale it up.

Then the other one is going to be the Series A. The Series A is more as a way to continue

expanding to achieving more milestones. But the Series A Round is where you start to see

that blend between the angels, then the VCs, and then the VCs take it on, and they continue

to invest with perhaps private equity firms down the line.

Something that is important is that when the angel investor invests, let's say at a seed

stage or at a Series A they're going to continue to execute on maintaining their equity ownership.

They're going to do that via certain negotiations or certain clauses that they're inserting

in their agreements. That is the pro-rata rights, as an example.

What that gives them is access to continue investing to maintain the position as the

company matures because if they're investing now, and they put $20,000 to $25,000, and

they see that the company continues to be successful, then let's say at a Series A or

a Series B level, they have a certain right to continue investing so that instead of having,

let's say, their 10% going down to 1% or 2%, they can continue to invest so that 10% continues

to be 10%. Even though it's a higher valuation, but perhaps that equity ownership is super

important for them to keep.

That's the way that the angel investors work and the different flavors that you have in

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from A to Z with everything related to fundraising. Thank you so much for watching.