[ Pobierz całość w formacie PDF ]
.28In fact, some observers believe that the stage at which angels investis a strategic choice.For instance, some angels make later stageinvestments to obtain a better risk-return ratio and make seed stageinvestments only if there is no better option.In fact, one angel in the Fedsponsored focus groups explained that seed investments are done onlywhen other investors have taken all of the later stage deals.29Moreover, some angel investors focus on management buyouts andleveraged buyouts because that is where their expertise lies.In par-ticular, retired executives of old economy, manufacturing companiesoften try to invest in turnaround opportunities where they can exploitproven management techniques, experience, and contacts to earn afinancial return.30Level of Risk Does Not Define Angel InvestingSome observers say that angel investments must be high-risk deals,excluding all deals that are not  high-risk. 31 However, defining onlyhigh-risk deals as angel investments doesn t make a lot of sense.Forone thing, what s one person s high-risk investment is another person smoderate- or low-risk investment because the riskiness of an invest-ment depends very much on the investor s knowledge.Therefore, arisk-based definition of angel investing is very subjective.Moreover,the preference of some angels for later stage companies and leveragedbuyouts means that at least one group of angels doesn t make invest-ments that involve technical risk (the risk that the entrepreneur maybe unable to produce the product or service that he proposes offering)or market risk (the risk that the entrepreneur may not find a customerfor his or her product or service).32What Is Angel Investing and Why Do People Do It? 21Making Equity Investments Does Not Define Angel InvestingAnother odd way that angel investors have been defined has been tolimit them to those people who make equity investments in start-upcompanies.For instance, one observer wrote, a business angel is  anindividual who invests equity capital directly into a business, usually asmall or medium-sized business. 33 This approach to defining angelinvesting doesn t make a whole lot of sense because angels use a widerange of financial instruments, from pure debt to pure equity.Becausethey have no fiduciary responsibility to others and are not regulatedlike banks, angels are not restricted in how they invest and can financecompanies with whatever type of debt or equity they choose.Moreover, in practice angels use debt fairly often.As will be shownin greater detail in Chapter 5, approximately 56 percent of all angelinvestments involve debt instruments.These instruments range fromsimple high-interest term loans to complex convertible debt that angelgroups use to avoid placing a valuation on a portfolio company (forfear that it will cause conflict with the entrepreneur that will undo adeal or make it difficult to bring in later round investors).Why the Long Treatise on the Definition of Angel Investing?So why have I spent so much time clarifying the definition of angelinvesting used in this book and showing that many definitions used byother observers are contradictory and problematic? Because our abil-ity to understand the basic facts about angel investing the numberof angels in the United States, the amount of money they invest, theirattributes and the attributes of the companies and entrepreneurs inwhich they put money, the investment terms they use, and a host ofother things depends very much on having an accurate definition ofangel investments and angel investors [ Pobierz całość w formacie PDF ]