Don't Forget Angels In The Equation For Saving The American Dream

By: Marianne Hudson, ACA Executive Director

This post originally appeared on 

Two industry powerhouses - America Online Co-Founder Steve Case and former Hewlett-Packard CEO Carly Fiorina - made a splash recently when they led a report, “Can Startups Save the American Dream?

I very much like this report from the University of Virginia’s Miller Center and the ideas in it. However, they missed a significant piece of the answer. While the report focuses on how entrepreneurs can kick-start the economy, it overlooks what we need to do to support the angel investors who fuel the entrepreneurs creating our country’s jobs and innovations.

The contribution of angel investors is huge. Angels have backed some of the most important companies in America including Facebook, Google, Amazon, Twitter and Starbucks. Angels supply nearly 90 percent of outside equity to startup companies, after friends and family.  In 2013 angels invested nearly $25 billion in about 71,000 companies in every state. Without angel investors, many of these companies would not be around.

The Miller Center report focuses on five ideas to support entrepreneurs to drive job growth in our country. It’s a great start. But imagine the impact possible if we expanded the original scope of thinking by adding angels to the equation. Here are five ways we can do just that:

  1. Unlock angel capital for high-growth startups: Develop federal and state tax policies that provide incentives to increase angel investments in startups. More than half of states offer tax credits to angels that invest in early-stage companies. In addition to reducing angels’ investment risk, these incentives raise awareness of the investment class, potentially encouraging more angel investors. At the federal level, Qualified Small Business Stock (QSBS) is a tax provision that allows investors to minimize or eliminate taxes on gains from successful exits in small businesses. QSBS has led to additional investing in the past, but it’s difficult for investors to plan on these benefits because they change frequently due to repeated Congress debates on tax issues. Implementing a consistent tax policy that promotes a healthy environment for early-stage investing would help.

  1. Ensure high-quality angel capital: Angel capital is important to entrepreneurs, however capital from educated angels is even more important. This ensures sound investment decisions and that entrepreneurs get the “intellectual capital” needed to succeed. High quality angel capital comes from angels that actively improve their craft. Whether an angel invests alone, as part of group or in online investment platforms and crowdfunding, all angels need access to resources, education and information to make smart investment decisions, understand the risks and incorporate best practices. The Angel Capital Association and Angel Resource Institute offer education through webinars, conferences, seminars, and have vast online resources including the popular Investor IQ.

  1. Further integrate angel investors into the entrepreneurial ecosystem: The University of Virginia report has some great recommendations for how community leaders can work with business leaders to create environments that support entrepreneurial growth. Angels can also help by plugging more deeply into the entrepreneurial ecosystem in their own communities. Many angels are former entrepreneurs who have done exactly what new startups are looking to do. They can work with accelerators and incubators, participate in meet-ups, serve as mentors, give presentations, and coach entrepreneurs. It's also important for community and economic development leaders to talk to angels to learn more about their needs and understand what startups need to attract the right type of capital. Additionally, federal programs, such as Small Business Development Centers, would improve considerably if they were staffed with experts who understood equity capital and the type of support high-growth entrepreneurs need.

  1. Make entrepreneur education at universities more relevant: Many university courses and activities emphasize venture capital, with projects based on startups attracting VC money. However, research shows that angel capital is the more likely source of financing for startups. Entrepreneurs-to-be need education on the full variety of equity financing including friends and family, angels, VCs and more.  Some of this education could come from updating formal curricula, with additional education supplemented by real world angel investors serving as guest speakers, project advisors, and providing internships with angel groups and accelerators that work with angels.

  1. Expand on the paper’s terrific "Regulatory Roadmap": The report’s roadmap would help entrepreneurs navigate the complex set of business regulations in our country so they could more easily find relevant rules. Among other things, it suggests that regulatory rules be written in understandable language.  Amen to that.  I recommend carrying forward these suggestions to ensure that federal and state securities regulations better support early-stage companies and accredited investors.  This means simplifying existing regulations and finishing rulemaking for the JOBS Act. Several confusing securities rules need clarifications so that all involved parties - investors and entrepreneurs - understand the rules.

As Case and Fiorina state, the future for America is bright if entrepreneurs can be further educated and empowered. It will be even brighter if we do the same for the angel investors who fuel the entrepreneurs that create the bulk of our country’s jobs and innovations.


Here in Pittsburgh, we know all about angels “saving the American dream,” especially in the life sciences companies churned out by the Pittsburgh Life Sciences Greenhouse (PLSG). Of the $1B in follow-on capital in our 76 PLSG portfolio companies, angel and private equity investors have kicked in almost 40%, outpacing venture capital by more than 2 to 1. Angels and PE investors typically carry the day in the “hard to find” early-stage capital, but now are playing a big role in Series B and beyond raises as our companies are growing and getting their products into the market, some 122 and counting so far. Thank you to those who investors are truly “angels.”
John  Manzetti  9 years ago