Informal Risk Capital

INFORMAL RISK- CAPITAL MARKET The informal risk-capital market is the most misunderstood type of risk capital. It consists of a virtually invisible group of wealthy investors, often called business angels, who are looking for equity-type investment opportunities in a wide variety of entrepreneurial ventures.

Typically investing anywhere from $10,000 to$500,000, these angels provide the funds needed in all stages of financing, but particularly in start-up (first-stage) financing, Firms funded from the informal risk-capital market frequently raise second-and third-round financing from professional venture-capital firms or the public-equity market

Demographic Patterns and Relationships Well-educated, with many having graduate degrees. Will finance firms anywhere, particularly in the united States. Most firms financed within one days travel Majority expect to play an active role in ventures financed. Many belong to angel clubs.

Investment Record Range of investments: $10,000 to $500,000. Average Investment: $50,000 One to two deals each year

Venture preference Most financing in start ups or ventures less than 5 years old Most interest in financing Manufacturing-industrial/ commercial products. Energy/natural resources. Services. Software.

Risk/Reward ExpectationsMedian 5-year capital gains of 10 times for start-upsMedian 5-years capital gains of 6 times fro firms under 1 year oldMedian 5 year capital gains of 5 times for firms 1-5 years oldMedian 5- year capital gains of 3 times for established firms over 5 years old

Reason for rejecting proposalsRisk/return ratio not adequate Inadequate management teamNot interested in proposed business areaUnable to agree on pricePrincipals not sufficiently committedUnfamiliar with area of business

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