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Experience Counts

The hunt for angel investors is tough enough. Finding one who offers more than money adds to the challenge--but it's worth it.
April 1, 2008
URL: http://www.entrepreneur.com/article/191498

Laura Bennett found her angel investor in a mentor at Canada Life, her former employer. The life insurance executive asked Bill Acton, executive vice president of the company's European division, for advice on starting Embrace Pet Insurance, the Mayfield Village, Ohio, business she was launching with Alex Krooglik, 35. Acton was intrigued, and he invested $50,000 in the company, which wrote its first policies in 2006.

Acton had enough industry experience to sense that Bennett's idea for a niche insurance business held promise. Once he committed to Embrace, he stayed involved, offering guidance as Bennett, 42, searched for a major insurer to serve as a partner in the company. So far, the results are encouraging: Bennett expects to write more than $2 million in policies this year.

A survey last fall of more than 500 angel investors shows that Bennett was smart to line up with an angel like Acton, who knows the industry and could give her advice. The survey, released by the Ewing Marion Kauffman Foundation and the Angel Capital Education Foundation, showed that angels generally did well on their investments, averaging a 27 percent rate of return in an average of 3.5 years. But angels did better--as did the companies they backed--when they invested in industries they knew and in companies they had thoroughly researched and stayed involved with.

The study's co-author, Robert E. Wiltbank, associate professor of strategy and entrepreneurship at Willamette University, says entrepreneurs may often think it's too difficult to find angels with the right qualifications. But it can be well worth the effort. "If you can find angels who are able to truly add some value, it can really improve your situation as a business owner," he says.

A study from the Center for Venture Research at the University of New Hampshire found that total angel investments in the first half of 2007 declined 6 percent to $11.9 billion; the number of companies receiving funding declined 2 percent. And Wiltbank says the hunt for angel investors will likely only get tougher. With the stock market in turmoil and many investment portfolios shrinking, he expects angels will feel that they have less money to risk.