Q. What is required to be an accredited investor?
A. The Securities and Exchange Commission, under the Securities Act of 1993 requires that Angel investors be screened and accredited – for more information on the requirements of an accredited investor visit: http://www.sec.gov/answers/accred.htm
Q. What are Angel groups and why are they needed?
A. The role of an angel investor group or network, such as New Mexico Angels, is to collaborate for sourcing, screening, and evaluating deals, while providing greater shared financial leverage and a deep pool of supporting resources. There are over 170 angel groups operating in the U.S., from casual associations of individuals, to rigorous, pooled investment clubs. Some of these groups also operate investment funds; at this time, New Mexico Private Investors does not operate such a fund, but may at a future date. NMA is a member of the Angel Capital Association. We have done this to learn more about Best Angel Practices so that we might continually work to upgrade and improve our angel investing methods and practices.
Q. Are the investments limited to New Mexico?
A. No! We invest in deals all across the country – if the product is innovative and we can come to terms, we go where the deal goes! We have investment companies in from Boulder, CO, to Fort Wayne, IN, (just to name a few) to right here at home in Albuquerque, Santa Fe, and Deming.
Q. What is the legal form of NMA?
A. NMA is a New Mexico not-for-profit corporation, 501(c-6) – a member organization similar to a Chamber of Commerce.
Q. When and where do you meet?
A. NMA meets quarterly – January, April, July and October. Our April – October meetings are held in two locations, Albuquerque and Santa Fe with consecutive meetings on different days (Albuquerque on Wednesdays, Santa Fe on Thursdays usually). The same investments are presented at both, it just made sense because of the location of our investors to host two events. Meetings are usually held in the evenings over dinner and drinks and announced in advance via our newsletter (Sign up for our newsletter)
Q. Are you a fund?
A. NMA acts as a facilitator to bring vetted investment opportunities to our members. Our Angel investors pick and choose for themselves which companies to invest in, NMA simply helps find the deal and negotiates terms. The New Mexico Angels performs due diligence and screens all deals prior to presenting them, but strongly urges all investors to perform their own due diligence and takes no responsibility for any investment made by any member.
Q. How do you select investment opportunities?
A. Companies who are seeking investment submit an application to our Gust platform. We try to stick to companies that come to us by referral but will meet with anyone with a good deal. Once we’ve reviewed the applications and met with the companies, the President, Business Development Advisor and the Chairman of the Board narrow down the application pool to ~10. Those companies then pitch to the Screening Committee (the board, select investors and advisors). If selected, two of the companies will present at a Member Dinner.
We look for companies that have good terms, are seeking capital that our group could realistically fulfill, have a strong management team and product. Historically Angel investors invest in areas in which they have knowledge, experience, or strong connections.
Q. Do all Angel organizations charge their members a membership fee?
A. According to the Angel Capital Association, 87% of organizations charge membership fees. Most of the ones with no fees are informal organizations (investment clubs) with no structure (ie., not an LLC or 501c, etc.). Of those that charge fees, the lowest is $250 per year, with the highest being over $5,000 per year. The average membership fee is $1,108, and the median membership fee is $1,000.
Q. Where did the term “angel investor” come from?
A. University of New Hampshire Professor William Wetzel coined the term “angel investor,” taken from the early 1900s’ practice whereby wealthy businessmen would invest in Broadway productions. Today “Angels” typically offer expertise, experience and contacts in addition to money.
Q. How would you describe angel investors and their activities?
A. Angel investors are individuals who invest in businesses looking for a higher return than found in traditional investments, and who often relish the thought of being a coach, a hands-on team member, or giving something back to the community. Many are successful entrepreneurs who want to help other entrepreneurs get their business off the ground. Angels usually provide the bridge capital from the self-funded stage of the business to the point the business qualifies for the level of funding provided by professional venture capitalists (VCs) or corporate strategic partners. An angel “round” of financing is typically $100,000 – $ 1 million. Professional VCs average $10 – $14 million per round, mostly in later stage companies, though a relative handful of seed stage VCs will fund smaller, earlier amounts, from $500,000 to $2.5 million.
Q. Are there many angel investors?
A. With more than 2,500,000 individuals in the U.S. with a net worth in excess of $1 million, it is estimated that there are perhaps 400,000 active angel investors in the U.S. alone, funding 50,000 businesses per year. By comparison, professional venture capital funds about 5,000 companies each year. The total angel investment per year is estimated at about $40 – $100 billion, about twice the total of all professional VCs. Also, there are at least 170 known angel groups throughout the United States. The Ewing Marion Kaufman Foundation in Kansas City has done research on business angel investing groups, along with William Wetzel at the University of New Hampshire’s Center for Venture Research.
Q. What is the profile of the typical angel investor?
A. The “average” private investor is 47 years old with an annual income of $130,000, a net worth of $750,000, is college educated, has been self employed and invests $37,000 per venture.
- The above statistics imply that most accredited investors do not earn over $200,000 AND have a net worth of over $1M. It is usually either/or, so that the “average” private investor, although accredited, would not meet the rules of accreditation. For instance, if there were two investors, one, an executive having an annual income of $200,000 and a net worth of $400,000, and the other, a retired person having an income of $40,000 and a net worth of $1.2M, their “average” would be an income of $120,000 and a net worth of $800,000. But they are both accredited.
- Most angels invest close to home and rarely put in more than a few hundred thousand dollars.
- Informal investment appears to be the largest source of external equity capital for small businesses. Nine out of 10 investments are devoted to small, mostly start-up firms with fewer than 20 employees.
- Nine out of 10 investors provide personal loans or loan guarantees to the firms they invest in. On average, this increases the available capital by 57%.
- Informal investors are older, have higher incomes, and are better educated than the average citizen, yet they are not often millionaires. They are a diverse group, displaying a wide range of personal characteristics and investment behavior.
- Seven out of 10 investments are made within 50 miles of the investors home or office.
- Investors expect an average 26% annual return at the time they invest, and they believe that about one-third of their investments are likely to result in a substantial capital loss.
- Investors accept an average of three deals for every 10 considered. The most common reasons given for rejecting a deal are insufficient growth potential, overpriced equity, lack of sufficient talent of the management, or lack of information about the entrepreneur or key personnel. There appears to be no shortage of informal capital funds. Investors included in the study would have invested almost 35% more than they did if acceptable opportunities had been available.