Suppose you’ve started a business that needs $100,000 of external financing to get off the ground. Because none of your friends or family has the money to make the investment, you’re looking for an accredited angel investor.
That investor is going to be very, very hard to find. Statistically, very few people are in a position to make these kinds of investments.
Let me give you some numbers to show you how rare this source of financing is. Because only a small number of new companies are successful enough to generate a reasonable return on an investor’s capital, most accredited angel investors realize that they need a diversified portfolio. Therefore, most investors will only invest a small portion – sophisticated angels say no more than 10 percent – of their net worth in start-ups. So a person who can invest $100,000 in start-ups needs a net worth of at least $1 million.
Why It's So Difficult to Find Angel Capital