Abstract: One of the most difficult components in starting and growing a new enterprise is acquiring capital and other resources. Funding for many new enterprises comes from a large, yet relatively unidentified, group called angel investors. This case study is one of the few to examine the returns from angel investing and one of the first to examine the dynamics of angel investing groups. Computing internal rate of return for angel investments for Keiretsu Forum, an angel group, for the years 2000-2006 revealed that the investments generated higher returns than could have been obtained from the broader equity market as measured by popular index funds. Perhaps more important, this study also indicated that the processes developed by and regularly used by the angel group are effective at identifying potential failed deals and are not so restrictive as to bypass potential winners. This research also showed that networks of angel groups are beginning to develop and this development not only contradicts the established notion that angels only invest locally but also reveals that the amount of capital that may be raised from angels in these networks of groups can be greater than previously thought. The information that can be generated from the angel group processes is increasing and the speed and cost by which that information can be developed and shared is decreasing. These results point to an area for future research that may indicate a change in the investment ecosystem and potential changes in the relationships between angels and venture capital firms. This information and the ability to raise capital for early stage enterprises quickly and effectively may help make more capital available ultimately driving the creation of new enterprises and economic growth.
Keywords: Angel investing,Early-stage investing,Entrepreneurship,Innovation,Internal rate of return,Private equity,Risk, Venture capital