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Intro to SSRN series: Angel Investors and their Investments

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Venture South Team
Last updated: May 9, 2024
Open book

As angel investors, we are constantly seeking ways to improve our performance “in the arena.” One of our techniques is that we sometimes consume academic studies about angel investing.

Few things are more interesting to read, on pretty much any subject, than the SSRN Electronic Paper Library.

Combining these two unlikely statements resulted in a new series of VentureSouth discussion posts starting today. 

Every couple of weeks (time permitting) we plan to review one paper (or related set of papers) about angel investing, venture capital, entrepreneurship, or ancillary subjects that interested or surprised us. We’ll widen the aperture to scholarship in other journals, but SSRN alone will keep us busy for a while!

We are not rigorous academic scholars, and our statistical skills are…lower quartile. Lots of the details of these papers are beyond our ability (and time) to evaluate with sophisticated mathematical techniques. But still, we thought overlaying our experiences and opinions as angel investing practitioners might elaborate, contradict, or supplement these studies. Let’s see what we find.


As a gentle warm up, we’ll begin with this introductory paper: Angel Investors and their Investments by Ramon P. DeGennaro from 2010. You can download the paper here to follow along. I promise this is a quick and easy read!

Professor DeGennaro, from the University of Tennessee, provides an overview of what angel investors are and what they do. Although the early-stage investing world has developed substantially since 2010, some of these basic questions are timeless.

What is an angel investor? Angels invest their own money (unlike a venture capital fund that primarily invests others’ money), but how “independent” must an investor be to be an “angel”? Do only VentureSouth-style angels – people investing in companies they are not related to – count, or is an uncle lending a nephew money for his startup, or a CEO investing in her own company, an angel investor?

What do they invest in? Here we are on more solid ground – early stage companies. Often pre-revenue or with limited sales, tangible worth, and “proof” of traction. Angels invest earlier than venture capitalists, in smaller amounts but in many more companies.

The article also covers other basics effectively, including the varied types of company funded, accreditation levels and regulations, motivation for angel investing (mixing financial return, intellectual stimulation or emotion fulfillment, and community development – a.k.a. “Make Money, Have Fun, Do Good”), the advantages of angel investing in groups (diversification, division of labor, deal-flow, visibility, administrative leverage, social benefits), the lack of attention given to angel investing from wealth managers and writers, the characteristics of companies that angels seek, the long time to liquidity, and the challenges of evaluating returns in opaque private markets.

As a survey introduction to angel investing, there is little to pick fault with. One could argue that the division between “sophisticated” investors (those that invest in high-growth tech companies) vs. “unsophisticated” or typical angels (who invest in any businesses), is a bit insulting and misleading; there are sensible and potentially lucrative ways to invest in “regular” businesses. The discussion of why angel groups typically prefer investing into convertible preferred stock (“They claim that this has the advantages of deferring valuation of the firm until more information is available.”) seems to confuse preferred equity (which requires a valuation) and convertible notes (which defer the valuation discussion, sort-of). But otherwise, as a quick survey of angel investing, it’s an efficient and quick read.

In addition, a couple of interesting nuggets stood out to me:

  • The more patents in the Metropolitan Statistical Association, the smaller the angel group (p.10). I wonder if that is still true, and why? Seems counterintuitive.
  • Angel groups with paid managers invest more (p.10). This one does seem believable. 
  • Angels are often from “first-generation” wealth, because those individuals tend to have higher risk tolerance for a given amount of investment (p.24). Generalizing some, but this also seems to match our experience of the type of individuals who like joining VentureSouth.

That was an easy introduction. Next time we’ll tackle something more controversial!