08 Nov

Understanding the Small Businesses that Get Angel Investment

There’s a good book out called Fool’s Gold that gives a snapshot of the typical angel investor.

The book also describes the kinds of businesses that angels invest in (along with characteristics and demographics of the entrepreneurs / business owners that run them).

The book, by Professor Scott Shane, debunks a lot of myths about angel investing. I guarantee that whatever you think you know about angel investing, you’re bound to be wrong about at least one thing, if not several.

For example, conventional wisdom says that angel investing is a stepping stone to getting venture capital. But the facts say that angel investing is just a different type of funding that an entrepreneur chooses, not a step toward venture capital.

As one example of myth-debunking, consider this excerpt from the Chapter “Who Gets Angel Money?”:

“The companies that receive external equity investments are older and more developed than is commonly believed. They are not particularly high performing and include a surprisingly large number of home-based businesses and a surprisingly small number of companies with intellectual property. But there are some differences between companies that receive external equity and companies that do not. Two of the major distinctions are the tendency to provide a product rather than a service and the tendency to sell to businesses rather than to consumers.

The entrepreneurs who receive external equity financing also look different from the picture that is often presented in the media. They are older, more educated, less likely to be part of a team, and less heavily invested in their businesses than is commonly portrayed. And — policy makers take note — they are disproportionately White men.”

So who would want to read this book? Obviously, anyone interested in angel investing, either as an investor or as someone looking for angel investment.

Beyond those two obvious groups,┬áthere is value in the broader observations and data about┬áthis segment of small businesses — those that get angel investment. If you are looking to get inside the minds of small business owners and understand more about their motivations for seeking outside funding, the stages at which they seek additional funding beyond their personal funds, and what those businesses look like that are getting funding, the book can be very helpful. It could be eye-opening.

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  1. Allen Taylor said on November 8th, 2008 at 11:15 pm

    Nice writing. You are on my RSS reader now so I can read more from you down the road.

    Allen Taylor

    Reply
  2. Mary Grace Ignacio said on November 9th, 2008 at 10:55 pm

    I just recently read Scott Shane’s article about Myths about Angel Investors over Small Business Trends and I can see he actually have written a book about it. This will definitely be a good read for business owners looking for Angel investment.

    Reply
  3. Amanda said on November 10th, 2008 at 10:27 am

    Angel investing is one of those terms that you hear often but may not know exactly what it means. I didn’t know what it specifically meant until just recently. Reading a book like this would help dispell any myths and answer any questions that someone like myself would have.

    Reply
  4. Martin Lindeskog said on November 12th, 2008 at 9:57 am

    Interesting book tip.

    Reply

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