GRAND RAPIDS – Webster?s Dictionary defines angels as supernatural messengers. In a financial context, angels are individuals who are willing to make high risk investments in new companies.

The term angel originated about hundred years ago referring to people who invested in Broadway plays. Today angels are accredited investors, as defined by the Securities And Exchange Commission as having a certain net worth or annual income. The assumption is that angels are financially knowledgeable and therefore can afford the possible loss of their investment.

There is a high degree of risk involved in angel investing. It is estimated that over 90 percent of all new companies are no longer in existence by their fifth anniversary. Companies that receive angel financing are usually either in the seed or early stage phase. The seed stage is where there is a concept or product which has not been commercially tested or operational. The early-stage company is generally less than three years old and is generating revenues but not yet profitable.

Because of the high degree of risk, seed or early-stage companies rarely qualify for bank financing. They must rely on three F?s (family, fools and friends) to supply the initial capital to start the business. However, these three sources of capital are usually insufficient to carry a new company until it either has a positive cash flow and/or is creditworthy. Typically, venture capital firms do not invest in deals less than several million dollars. Thus the niche that angel groups fill ranges from $250,000 to $ 3 million.

Angel groups are becoming more common. According to the Center of Venture Research at the University of New Hampshire, there were approximately 200 angel groups in the United States in 2003, compared with 100 in 1999. Angel investments in 2003 were an estimated $18.1 billion in 42,000 deals. This is compared to $18.2 billion invested by venture capital funds with only 2 percent of those deals in seed or early stage investments according to the National Venture Capital Association.

Angel groups are generally comprised of cashed out entrepreneurs and other high net worth individuals. Their motivation is not just to make money but also to spend time with early-stage companies. Angels realize that the role of mentoring, coaching and/or simply making introductions to the right people can be just as important to the success of a new company as the money invested. It also gives the individual angel an opportunity to stay engaged in business by sharing his or her skills and experiences.

At this point in time, there are four angels groups in Michigan. One local example is Grand Angels (see www.grandangels.org ) which started in Grand Rapids in January 2004 and now has forty members. Its mission is threefold: 1)make profitable investments in West Michigan 2) give back to the community on the assumption that the new companies will create jobs and 3) have fun, given the camaraderie among the angel members. Based upon the two investments Grand Angels have made to date, the advantages of working together in a group result in enhanced deal flow and better investment decision. However, Grand Angels do not invest as a group; the investment decision as to whether and how much in each deal remains with each member of Grand Angels.

In addition to its investment activities, Grand Angels is exploring the concept of a Grand Angels Foundation. Its purpose would be to develop and implement a curriculum on entrepreneurship for K ?12 and college students. Grand Angels has had preliminary discussions with the Seidman School of Business at GVSU and Junior Achievement, both of which have expressed an interest. A second purpose would be to serve as an intermediary between entrepreneurs and the public and private sectors resources, such as the Smart Zone, SCORE, the Right Place, Small Business and Technology Development Center and other groups.

Angel investing is a high risk business. However, the potential gains for the individual angels and the community through job creation make angel investing critical to our future.

Charles Stoddard is the Grand Angels Managing Director. He is the founder and former Chairman of Grand Bank Financial Corporation