The 6 types of Angel Investors
I did my PhD as a part-time student – I somehow found the time to research and write in between working. The up side is obviously being able to earn an income. Lots of post-graduate students (probably most) complete their studies part-time. With a masters degree, this isn’t too big a deal. It means 2 or maybe 3 years of part-time study (my MBA took 2 years). With a PhD (or at least mine!) it means 8 years. That’s a long time.
One really big advantage of doing a PhD over such a long period of time is the ability to see how the market is changing.
Today I am going to discuss the impact of these changes on the nature of angel investors. By looking at some of the changes in the market, interviewing angel investors, entrepreneurs, VCs etc., and having lots of conversations with others, I reasoned that there might be a number of archetypes of angel investors.
Archetypes are just patterns of behaviour and we use them to understand a subject without the need for analysis.
There are a lot of different angel investors out there. But, they can all be categorised as one of six archetypes. There are three components of angel investment that are really important to think about:
1. Investment value
2. Number of investments
3. Level of post-investment involvement
I reasoned that each of these could be either high or low and from there I could create some archetypes based on my research. A simple table of these archetypes is below. I’ll explain each one briefly.
The traditional angel still exists. High net worth, investing their own money in a firm an providing their human and social capital. They are involved in the day to day operations of a firm (adding value) and this involvement limits the number of investments they make.
The passive angel is the person who wants to invest money in a few firms but doesn’t want to get involved. They only have financial capital to offer. Believe it or not, there are quite a few of these investors around. They aren’t a particularly good fit because they don’t add any value. Nevertheless, they still identify as angel investors.
The third angel is the sweat investor. This investor is the opposite of the passive one. They bring human and social capital, but not financial capital.
This type of investor can certainly be useful, but entrepreneurs need to be careful about the equity side of the equation. They will eventually want something for their efforts.
The syndicate angel is the next. These angels invest as a group (either in a formal network or otherwise). There is usually a traditional angel in the syndicate, who takes the lead on the deal and any post investment involvement.
These types of angel can be really good because they come with a network of skills and knowledge as well as pooled capital. They are very hard to find – build up your personal networks to find these angels.
The diversifying angel is next. They take a portfolio approach (which I’ve written about before). The diversifying angel holds lots of different angel investments.
Unless these angels also happen to be syndicate angels, then you won’t get much in the way of “value add” from them.
The last type of angel is the working angel. These angels are not necessarily high net worth and are typically employed (they may not be entrepreneurs and are not retired).
There are pluses and minuses with this type of angel. Because they aren’t high net worth, they might not be able to bring a large amount of capital. They also won’t add as much human capital because they are busy in their own job. But, they can potentially bring lots of contacts and future clients.
These angels are certainly valuable in their own right.
So there you have it. The six different types of angel investors. When looking for external investors, keep these in mind and work out which is most beneficial to you.