What Keeps 750,000 Accredited Investors from becoming Angel Investors?
Karen Rands, covered this topic on her Compassionate Capitalist Radio Show recently.
In a nut shell….lack of knowledge — The men and women who are earning over $350,000 a year in income, as tracked by Census and the IRS, are likely executives in a large company or run small to medium size businesses. They didn’t make their money in a venture backed high tech company and likely aren’t part of a company that raised capital to get started, or if they are, they weren’t part of the team that founded that company. They aren’t being encouraged to invest in private companies by their financial planner. For the most part they aren’t even aware of “angel investing” as a wealth creation strategy and may not know that stock of private companies are available to purchase before they go public. They are the ones that try to “get in on” the first issue of public stock for the hot company they are hearing about. They are sophisticated investors so like the idea of having their money work for them. That is why they often invest in real estate. Yet if they knew they could apply the same practice they use to decide if a property is a good investment or a public stock is a good buy to the decision to purchase equity in a private company, and have the opportunity to own a % of multiple entrepreneurial endeavors with strong potential, they would choose to include that as part of their wealth accumulation strategy.
According to the US Census, there are an estimated 1,150,000 households that earn over $350,000 a year. Furthermore, there is an estimated 250,000 active angel investors involved in structured groups and actively considering investment in early stage companies as a means to create wealth in their diversified portfolio. And if we assume there are at least 150,000 of the wealthiest that have too much money to be angel investors…they don’t invest directly into companies, they invest in the funds that fund the companies. That leaves an opportunity for the remaining 750,000 to become angel investors.
Listen to the Podcast for the full report.
Whenever there is a shift in the market, there are key factors that trigger it and contribute to a successful shift. The 3 A’s of Market Movement:
Awareness of the potential to invest in a high growth company before it goes public or grows in value to attract an acquirer is growing as “crowd funding” news continues to spread around the internet and in the general press. With the advent of the Jobs Act of 2012, “crowd funding” became a common term bantered around, often within the wrong context, but none the less a phenomena that people were talking about. Wealthy men and women who consider themselves “sophisticated investors” with an above average Financial IQ are curious about this as a new “hot” investment platform. Yet there exists a cloud of confusion around “crowd funding” because although passed by Congress and signed into law by the President, the sale of securities is regulated by the Securities Exchange Commission (SEC). As of this writing, the SEC still has not issued their rules for the Title III part of the Jobs Act that specifically addresses how companies will do equity crowd funding at a national federal level. Currently 4 states offer specific legal guidance and approval for companies incorporated in their state to raise money from investors in their state via crowdfunding methods- Kansas, Georgia, Michigan, and Wisconsin, with Washington, Alabama and South Carolina considering legilsation. Companies are permitted through Title II to raise capital from Accredited Investors under the Reg D 506c and Reg A, under specific conditions, and market to them via the same means that companies use in rewards based crowd funding. Learn more about history and status of crowdfunding.
As this community of sophisticated investors who would easily qualify as “accredited investors” via the certification process by providing copies of their W2 or past tax filings become aware of the opportunity to invest in private companies they must learn to adopt the mentality of an angel investor. Angel investors think differently than regular investors who are simply wealthy. Angel investors have to have vision and imagination. Entrepreneurs seeking angel investment must be able to cast a vision that the potential angel investor believes can be a reality. They must imagine the potential results that the management team will be able to produce with the product and strategy they are offering that is at the core of their investment opportunity. If the entrepreneur is successful in conveying that story and it is better than the one the investor just heard or will hear the next day, then they will be the lucky one to get that angel investor’s money. Traditional investors look at the history of a public stock to anticipate a trend, the market comps on a real estate to predict a trend… all with the intention of buying low to sell high. None of that really exists with private companies. That is where an investor has to “think outside of the box” and think about the company beyond just what has been done so far and grow to understand that buy adding private equity investment to their portfolio they have an opportunity to produce a greater return…if they don’t lose the entire investment. Investment in private companies is by its nature very risky. It is an illiquid investment and sometimes the return doesn’t come for many years down the road. So as sophisticated investors adopt private equity investment in early stage companies as a strategy to grow their portfolio, they must also be extremely patient. They also must take the time to learn about the legal requirements to make this type of investment.
With knowledge that they can own pieces of many companies, and the desire to become an angel investor, all that is left is access to the deals and the due diligence. Traditional angel investors join groups that help with the screening and due diligence process. Committees are formed to screen deals so only the best get a chance to pitch to the group at large. Committees are formed to conduct due diligence on the company and report back to the group of investors so they can decide to participate in a pool of funding for that company. They may have an obligation participate on a committee periodically and to attend the monthly pitch meetings and follow up meetings. They can spend this time because they typically don’t have a day job. They are wealthy because they had an exit from a company or an investment that provided them with disposable income to invest. They “self certify” in traditional angel investments so as to avoid full disclosure on their actual net worth and sources of income. The 750,000 accredited investors we are talking about here, that are void in the marketplace now, are too busy to participate in those groups and participate on a committee that requires time, even if the group is actually located in the city they live in. They have access to public stocks through stock portals to do the research and trades whenever they want, 24/7. They have real estate agents find them investment properties. Their financial planner won’t find them private company investment opportunities because of the rules they have to adhere according to FINRA. So gaining access to a variety of opportunities to consider that also have full disclosure and due diligence information available is critical as the final trigger in the market shift.
Kugarand Capital Holdings, LLC is launching a secure portal to provide the opportunity and the due diligence necessary for this type of sophisticated accredited investor. The 22 year old NBAI is being transformed into The National Network of Angel Investors comprised of small regional groups forming virtually around the country based on regional or special interests. Education is provided on an ongoing basis through articles, white papers, podcasts and videos. Sophisticated Accredited Investors seeking to understand how to become an Angel Investor…how to adopt the mentality, but also learn the ropes of being an angel investor… applying the knowledge of stock market and real estate investment to private equity investments will purchase the book “Inside Secrets to Angel Investing” as their road map.
Are you an investor that is tired of the volatility and unpredictability of the stock market? Are you frustrated that you have little influence to affect the management or operation of that public company? Have you realized that the public stock market is actually pretty risky and the overall return on investment isn’t that great? Then the time is now to participate in this market shift…. Then learning how to invest in private companies, purchasing shares in a company before it goes public, while the valuation is still low, could be the wealth creation strategy for you. Tune in to learn how to join the world of compassionate capitalism
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