Adam Breslin readily admits that before he was ready to put his business plan to the test, he was looking for a little help from above. But Breslin wasn’t banking on divine intervention, he was simply courting angels.

Breslin’s courtship with so-called angels–the earliest of early-stage investors–resulted in investments from seven sources totaling more than $1 million for his Washington, D.C.-based company, Pinpoint Training, which he founded four months ago with partner Lawrence Berger.

"To be honest, it’s not that tough to find a few doctors or lawyers who will toss $25,000 a piece into your company," Breslin says. "But it’s a whole different story if you’re looking for people who can add value to your business by providing expertise, contacts and management advice."

Breslin’s experience in the rapidly evolving world of angel investing provides a glimpse into a segment of the private-equity market that falls well below the radar screens of most venture capital firms and big institutional investors. For many entrepreneurs, angels provide capital–and frequently, valuable guidance and strategic assistance–that they would likely not find anywhere else.

"Not every start-up is going to take the angel path because they might be able to rely on their resources for awhile, maybe they have access to family money, or they can develop their business on the side while they hold down a regular job," says Mark Dane Fraga, managing director of Wharton’s Sol C. Snider Entrepreneurial Research Center. "But for those who need money to pay their bills, fund development of a certain technology or finance a market analysis, angel money could not possibly be more important."

Angel Roll Call

Drawn by the allure of the spectacular returns rung up by some start-up companies over the past several years, a growing band of angels has pumped new energy–and tens of billions of dollars–into start-ups. Often, the recipients of these investments are little more than an enthusiastic entrepreneur and a rough-around-the-edges business concept.

Though exact numbers are hard to come by, active angels are believed to number more than 1 million. According to estimates from the Center for Venture Research at the University of New Hampshire, angels invest a total of more than $40 billion a year in 50,000 companies. They are risk takers for whom the payoff for a good investment may be a decade down the road.

"A venture capital firm will back you once your business model is proven. Or they’ll invest if your model isn’t proven, as long as your business is glamorous," says Breslin, CEO of Pinpoint Training, which delivers business and management training both at company locations and over the Internet. "But there are a lot of companies that don’t fit into either of these categories and yet have a legitimate need for capital. That’s where angels come in."

Angels take many different forms. They may be an entrepreneur’s friends or family members, a professional who has accumulated a fair amount of wealth, or an entrepreneur who has created a successful business and is seeking a way to put some of his or her capital to work. Angels also share certain traits: Most stick close to home, financing companies in or near their own backyard. Typically, angels invest from $25,000 to more than $1 million, and prefer to be part of a group of investors.

"When it comes down to it, I’m looking for Grade A management, a terrific business model and great execution of that model," says Ralph Mack, a New York-based angel, who has invested in more than 25 companies over the past five years. "I realize that’s what everyone says they’re looking for, but you’d be surprised at the number of people who think they can get by on just a good idea."

Mack says that the companies that capture his attention are also those that have:

  • An in-depth understanding of the market in which they’re competing
  • A product or service that can be differentiated from the crowd
  • A concept that is very "scalable"–one that can be rapidly expanded over the Internet.

Mack, whose investments include MGC Communications, iVillage and–the winner of Wharton’s 2000 Business Plan Competition–took an interest in nurturing start-up businesses during the early 1980s, and helped develop a Wharton program on new ventures. "I saw a lot of real solid business plans, but in those days there just wasn’t a lot of money around to finance them," he says. "Now, there’s plenty of money out there chasing deals, but the key is matching the right money and the right business. It’s not always easy."

The Ideal Angel

Many angels and entrepreneurs agree that finding that match is not only difficult, but essential.

"The ideal angel is someone who is a generation ahead of you in creating value in the industry that your product will serve," says Wharton’s Fraga. "They’ll provide financial capital as well as intellectual capital, which could be even more important than the money. That’s why I always tell entrepreneurs that they should be doing as much due diligence on angels as the angels are doing on them."

New York-based DealMaven LLC’s quest for financing has centered on an age-old business strategy: Networking. The company, a developer of software that helps investment banks analyze financial transactions, is close to putting the wraps on a $200,000 round of angel financing, says Andy Stack, a partner and manager of investor relations for DealMaven, which also offers online training for financial services companies.

Vince Scafaria, DealMaven’s founder, has tapped many contacts from his days at Donaldson, Lufkin & Jenrette as investors for his venture. "Our connections," Stack says, "have been enormously helpful in not only identifying investors but in identifying investors who understand investment banking and provide us with some real expertise." Stack believes the keys to a successful round of early financing are being somewhat selective in choosing investors and always keeping in mind that angels are not philanthropists. "You have to make sure there’s something exciting for them from a financial perspective and that you illustrate for them the kind of increase in valuation they might expect," he notes.

Some of the difficulties of pairing the "right" angel with the "right" startup have been erased by the Internet, which has enabled groups of investors to band together to form networks. Fraga points to web ventures such as and, which work to match investors with businesses, as powerful examples of how the World Wide Web has "greased the wheels for angels and start-ups."

From Entrepreneur To Angel And Back

Jerry Bedrin is an entrepreneur turned angel. About two years ago, Bedrin sold the office supply company he founded and began his career as an angel. Since then, he has invested in about 20 businesses, typically contributing about $100,000 to a financing round of $1 million to $2 million.

"I saw the success that traditional VCs were having with large amounts of money and I thought it would be fun to join in but I didn’t have the kind of resources they had," Bedrin says. "I learned pretty quickly that there’s a big market out there for people who want to make smaller investments in new companies that the VCs won’t touch."

Bedrin, whose investments are concentrated in technology-related companies, has been impressed with the business plans that have come across his desk. "I’m talking to credible business people with great credentials and solid plans who are coming up with world-changing kinds of ideas.

"I know everyone says you have to concentrate on the management team in order to decide whether to make an investment, but I’m still driven by the power of a new idea that has the potential to change the way people or companies do things," says Bedrin, who is getting ready to launch a small-business incubator that will offer office space, back-office support and even seed capital to young companies.

The most common shortcoming among entrepreneurs, he says, is that some "underestimate the complexity of what they’re getting into and how hard it is to raise money to keep going or to expand."

Adds Mack, the New York-based angel: "Angels are often there to help you get going when no one else will. The money you get from them can help you [clear] certain hurdles and prove to others down the line that you and your model are for real.

"That’s what starting a business is all about."