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Startup founders benefit from angels' expertise as well as money, but they have to surrender some ownership and management control in return.New companies need money to get off the ground, of course. But where to find it? Banks tend to shy away from infant enterprises. And despite all the ink spilled about venture capital funding, just .05% of new businesses raise money from VCs,That's where angel investors come in.
Typically, an angel gets an ownership stake in the company in exchange for their investment, as well as the chance to offer advice and guidance to the founders. Then five to seven years later, if all goes well, they'll expect to make a tidy profit when the startup either goes public or finds a buyer.
. Angels tend to look for returns of about 25% or more over a period of five or so years via an initial public offering or an acquisition. But make no mistake: These are super-risky deals. The best estimate for investor returns, according to the Kauffman Foundation, is 2.5 times their investment, with the odds of a positive return less than 50%. So it might not be surprising to hear that only about 10% of most angels' total portfolios are in these startup investments.
And their investments are bigger. For example, the median sum for a Series A round — the second stage of startup financing, when venture capital firms tend to get involved — is almost $16 million,Plus, VCs charge hefty fees — typically around 2% in management fees and 20% of profits, usually above a certain hurdle.No debt
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