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.m.anymore. 41One study found that having the opportunity to contribute to thedevelopment of new companies is one of the major reasons peoplebecome business angels.42 Of course, this is probably a greater motiva-tion for people who have had entrepreneurial experience themselves andwho have had a good time building start-up companies in the past.Some angels enjoy becoming involved with start-ups and workingwith entrepreneurs because of the satisfaction they get from buildingsomething new.In the focus groups on angel investing that I conducted,several angels explained that they make these investments becausethey like to grow something from nothing by helping an entrepreneurtransform a technology into a new product or service or convert anidea into an organization.43This motivation is particularly true of angels who were success-ful entrepreneurs.Once these angels exit their own companies, someof them look for ways to help other entrepreneurs create and growsuccessful companies because they enjoy being part of efforts of build-ing companies from nothing.4424 Fool s Gold? Angel investors also enjoy getting involved with other people s compa-nies because it allows them to make use of expertise they have developedin an industry, with a particular technology, or in building companies.Investing in private companies provides a way for the angels to give oth-ers the benefit of their expertise, whether that expertise involves com-mercializing new technologies, selecting managers to run companies,or something else.45 For instance, one angel who participated in theFederal Reserve sponsored focus groups explained that he is primarilyinterested in investment opportunities that leverage his skills.46In particular, many angels say they want to pass on the skills theyhave developed to the next generation of entrepreneurs47 and tohelp young entrepreneurs develop as businesspeople.48 As one angelexplained, I.have been involved in building companies.myself.I enjoy helping other people who are doing the same thing. 49Many angels have strong beliefs about what actions help and hin-der the growth of companies.By investing as angels, these individualsbelieve that they can increase the upside potential of business opportu-nities.50 One angel said, I ve had both success and failure as an entre-preneur and.I was driven to take that experience and help people,so.they wouldn t make.the same mistakes I made. 51Several angels explained that they invest to get entrepreneurs tocompensate them for their expertise.Many private companies cannotpay cash for assistance, so an expert in marketing, product develop-ment, or whatever the angel believes is the source of the value that heprovides to start-ups needs to take his payment in the form of equity.If the company he is helping also needs capital, the expert often endsup making an angel investment.52Ironically, some angels say they invest in other people s companiesfor precisely the opposite reason.Rather than getting compensation fortheir expertise, these angels say that they invest money in new companiesbecause entrepreneurs will not listen to their advice if they don t haveto pay for it.In fact, at least one angel group was established becauseretired executives who wanted to share their knowledge and experi-ence with entrepreneurs found that the entrepreneurs wouldn t listento them unless they also invested in the entrepreneurs ventures.53To Learn New ThingsAnother reason people make angel investments is to learn somethingnew.Some angels want to learn about how companies develop.Becauseinvesting in private companies allows people to become involvedWhat Is Angel Investing and Why Do People Do It? 25 with more than one company at a time, some people find it to be aparticularly effective way to do this.54Other angels recount that they like to invest in private companiesbecause they like to challenge themselves and their ideas in an openforum and debate different views
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