With many banks still hesitant to loan capital choosing instead to hoard it, and with venture capital firms targeting less risky companies that are in the later stages of growth, start-up businesses have had to look to new funding sources to launch. The trending wave: “Angel Investors.” These investors are wealthy investors who provide the capital to start-up firms with the potential for immediate growth.
A recent study by the Organization of Economic Cooperation and Development found that “[w]ith banks reining in all but the safest loans since the recession, and venture capital firms now targeting less risky late-stage business startups, angel investors are nearly alone in backing young, fast-growth companies.” Angel investors look at a “wider range” of companies to finance, and can be more creative in what they do, including not only giving money, but also advising the start-up business owners. In wake of the mortgage crisis and the need for a recovery, the OECD recommends providing tax breaks for angel investors. While banks might rally to revive their start-up funding in order to receive new tax breaks, the banks will likely not provide the same type of “service”—personalized attention and networking—that angel investors provide.
“Of the $8.9 billion in total investments by angels in the first half of 2011, 39% went into seed and start-up ventures, up from 26% of $8.5 billion in total investments over the same period in 2010 . . . . Many fast-growth, entrepreneurial ventures that attract angels are the same start-ups that create jobs. Led by start-ups, small firms have generated 65% of net new jobs over the past 17 years, according to the Small Business Administration.”