Heaven Sent

Numbers Game

The number of angel investors in the economy is a well-known fact: 250,000 or so angel investors in the United States pump some $20 billion into the nation's businesses each year, yada, yada, yada. Where this number takes on real significance, however, is in comparison to the alternatives. For instance, Pratt's Guide to Venture Capital Sources, the bible of institutional venture capital, lists more than 1,300 venture capital firms. But of this august congress, only 14 percent or so indicate a willingness to invest in early-stage firms.

Among investment bankers who do initial public offerings (IPOs), the numbers are even more discouraging. For instance, the Securities Industry Association, the big trade group of investment banks and brokerage firms, boasts almost 800 members. In truth, however, only a small fraction of these firms will even consider an IPO. An even better indication of the state of investing is provided by the Regional Investment Bankers Association (RIBA), a trade group consisting of regional and boutique brokerage firms that typically underwrite offerings of $5 million to $20 million. Of RIBA's 150 members, perhaps half originate and underwrite IPOs, with the rest acting as brokers and market makers. So what's left? About 75 investment bankers that will consider IPOs for emerging-growth companies.

So where should Cornelius spend his precious time looking for capital? Among the handful of finicky investment bankers and venture capitalists who seem predisposed to saying no, or among the 250,000 angel investors who have a wide variety of interests and who are actively looking for deals?

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This article was originally published in the May 1999 print edition of Entrepreneur with the headline: Heaven Sent.

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