Thoughts on startups by investors that
fund them & entrepreneurs that run them

Motivations of an Angel Investor

The typical angel investor is wealthy and about 60 years old—at a stage in their lives when golf, tennis, cruises, and grandchildren are foremost in their minds. They could easily turn their investment decisions over to a wealth manager. Why would they choose to invest both time and money in startup companies? Why? Because they want to! Ask any angel and you will learn that return on their investments is a primary motivation for investing these funds. But, at a time in their life when they have many attractive options, why invest their time in portfolio companies. These are some of the motivations I have heard from my angel friends:

  • Enjoying working with entrepreneurs—perhaps remembering a mentor in their career
  • Want to give back to the community—helping to grow local businesses
  • Want to work with enthusiastic startup companies, practicing their business acumen but in part-time engagements.

Each of these is laudable and frankly, some are altruistic.

In recent years, many of us have found that joining angel groups makes angel investing even more enjoyable. Angel groups provide easy access to deal flow while members bring experience in a variety of business verticals to both due diligence and the post-investment relationship – helping portfolio companies grow. Organized groups bring together angels together in a collegial environment – like-minded individuals working together to fund and help startups grow. I made a decision almost a decade ago to make all my angel investments through angel groups – sharing the work and returns.

Oh… did I mention angels investing for tax credits?  Or, because capital gains taxes are low (or temporarily forgiven)? Nope. Many of us have been investing as angels long before there were any state tax credits and through variations in federal capital gains tax rates from the ridiculous to the sublime. Do tax credits and capital gain tax rates impact angel investing? Maybe, but, this is a subject for future discussion.

 

All opinions expressed are those of the author, and do not necessarily represent those of Gust.

Written by Bill Payne

user Bill Payne Angel Investor ,
Frontier Angel Fund

Bill Payne has been actively involved in angel investing since 1980. He has funded over 50 companies and mentored over 100. He is a founding member of four angel organizations: Aztec Venture Network, Tech Coast Angels, Vegas Valley Angels, and Frontier Angel Fund.

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