One of your first questions about angel investing may be, “If this angel investing thing is so great, why is it only now becoming so popular?” Well, investing in small startup and growth businesses is not new – in fact, angel investors have been around for decades - but over the past five to ten years, angel investing has become a more popular way to diversify outside of typical investment vehicles. Where is this popularity coming from?
One major trend that has contributed to the growing popularity of angel investing is that, over the past several years, it has become less expensive to start a business. A company that would have been pursuing a raise of $300,000 ten years ago would typically only have had an idea on the back of a napkin – in other words, a very early stage concept. Today, because the cost of starting a company has dropped so drastically, if a company is raising $300,000, they typically have already built a prototype or an early version of their product, they have already had early customers signed up, and they have already received validation from their target market. In this case, they are in a later stage than what would have been a typical angel investment in the past.
That means that the risk profile has shifted. By investing in a company that has reached a later stage of its development, the risk has decreased versus a similar-sized investment in years past. This makes angel investing a more attractive alternative investment to those who were once turned off by the early-stage nature of angel investing.
For this reason, in addition to the appeal of contributing to the growth of startups and helping your local community, angel investing has started to present itself as a fun way to diversify outside of the typical investment vehicles, attracting the newest generation of angel investors.