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Angel Investors

Summary

Quick Facts: Angel Investors
2019 Pay Angel investors typically are high net worth individuals who invest in startups taking ownership positions from 5% to 10% for investments, in syndicate or individually ranging from $50k to $1M.  Angels typically receive no monetary compensation except the equity they purchase.  Sometimes however, companies may higher them as advisers or board members, in which case they may receive additional equity or monetary compensation. 
Typical Entry-Level Education No degree necessary. If you have proven yourself as a successful individual and have money that you have an interest in investing in an early stage company, entrepreneurs typically do not care if you have been to college or not.  They care about your experiences, enthusiasm and knowledge about their venture and industry, and your cash. 
Work Experience in a Related Occupation Generally this is how Angel Investors source their opportunities.  People view them as having expertise from an industry, they ask them to meet with and evaluate the opportunity, and then they invest.   
On-the-job Training Angels can generally get great incite from the Angel Syndicate groups that exist across the country.  Typically these orgs have monthly or quarterly dinner or lunch meetings in which Angels invite companies to present, and the members to consider investing in.  These can help Angels learn the basic terms of a deal from valuation, preferences, roles and 
Number of Jobs, 2019   ~ 500,000 to 1M, though many angel investors are friends and family of the entrepreneur.  
Pre-money Valuations Typically angel deals are valued in the $500,000 to $3M valuation range, and the angel capital  is added on top of that in order to determine what percentage of a company the angel has bought.  An angel investor who invests $100k in a company valued at $900k (for a total company value of $1M) owns 10% of the company. 
Other investing structures Sometimes rather than trying  to determine a pre-money valuation with the entrepreneur, angels agree to invest with warrants, and the value and money will roll into a round in the future priced by a a venture capitalist.  Lets say a group of angels put together a $416k round w/ 20% warrant coverage (so it equals $500k of value). If a vc comes in an values a company at $3.5M pre and puts in $1M, the addition $500k will roll into the company for a 10% ownership position. Without the warrants the investors wld have received closer to 8.5% ownership. 
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What Angel Investors Do

Angel Investors work with their own capital, providing the funding for companies at various stages of growth, buying ownership positions of a company while coaching the leaders to the next stage of growth and typically guiding them to a venture capital round.   Angel Investors generally only advise and are often averse to holding board seats given the personal liability due to serving in such a role.  Venture capitalists do typically take a board seat, and this is often because they have larger pools of cash and require the entrepreneur apply some of it toward Directors Insurance which protects them and their funds in case of a law suit.  

Work Environment

Rarely do Angel Investors have an office either on their own, or at the company they have invested in, and generally they simply do work and set calls from an office at home.  Sometimes higher net work angels maintain a family office in an office park, and from time to time they will also have a full time manager of their funds and assets who assist in the investment decisions and documentation, once a investment decision has been made; but these are the exception.  

How to Become an Angel Investor

Most Angel Investors are individuals who have been CEO's or successful entrepreneurs who have made a significant amount of money through their hard work over the years.  The way an individual becomes an angel investor is to simply build companies which help them to build and acquire wealth for others, and in that process, they will gain that wealth for themselves as well.  Typically they come from every industry, though the technology and biotech industries seem to be the places where individuals have been amassing the most wealth the quickest over the last few decades, giving them enough left over to consider such investments. 

Pay

Typically  angel investors only receive ownership for the amount of capital they invest.  So for example, if an entrepreneur's company is valued at $900,000 and the angel invests $100,000 for a total value of $1M, the angel investor would have a 10% ownership position in that company.  This constitutes the entire "pay" for the angel investor.  But the greater interest of many investors is not simply the opportunity to generate a great return, but many receive far greater satisfaction staying involved in the game of business and coaching what they perceive as talented young people following in their tracks.  Generally it will just be on monthly lunch meetings or phone calls, where founders take time to share problems, challenges or updates as they strive to build winning companies, seeking insights from the angel who has hopefully succeeded in many of the challenges the entrepreneur now faces.   Usually the angel does not receive compensation for this advice or time.  

Similar Occupations

The closest jobs to an Angel Investor is a venture capitalist.  Venture capitalists also invest in early stage ventures and work with entrepreneurs to growth them into winning companies.  Roughly 90% of all venture backed deals had  angel investors in the company before the VC invested.  Additionally, seasoned angel investors may be known entities to the venture firms, and their involvement can improve the chances of the entrepreneur getting a fair meeting with a partner at a fund.

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What Angel Investors Do

Angel Investors typically work for themselves, set their own schedules, and meet companies and evaluate opportunities as their time and interest demand.  Some work wholly on their own though most seem to join angel networking groups from which to invest.  

Most Angels spend their time on golf courses or networking with entrepreneurs or other angel investors, finding interesting teams or technologies in which to invest - generally seeking ventures that often fit their particular strategy and background of experiences.  Generally they avoid board seats for liability reasons, though some may seek them.  CEO's would be well served to do back ground checks on their angels and really get a feel for how active or involved these investors want to make themselves.  It is important the two individuals are aligned in interests and outlooks.  Generally speaking, angels can provide value advice to CEO’s, helping them to achieve milestones to grow value.  The achievement of these milestones is critical to assisting the management team in raising follow on rounds at higher valuations with the right co-investors.  As the venture capitalists fund a company, in most circumstances, the angel investors hold their equity positions but step further back from their involvement in the company.  


It is really hard to judge returns achieved by angel investors though it is fair to state that many angel investors lose much if no all of what they invest.  That said, some build more wealth on one good investment than they did in the rest of their successful professional career.   100x returns while rare, do happen.  

Duties

Angel Investors typically do the following:

  • Source portfolio companies, bringing them in to meet angel investors as diligence progresses, to get feedback on team members and the opportunity.
  • Spend lots of hours meeting companies and then conducting due diligence. This diligence can include assessing market viability, cost analysis, management back ground checks, and industry interest in the opportunity.
  • Study economic and business trends
  • Writing term sheets for prospective investee companies then working with lawyers to structure the investment documents and board governance. Generally there are go-to law firms whom the angel networks are familiar with to structure their deals. 
  • Assisting the CEO in setting fundable milestones, then advising the CEO as they pursue a fund raising plan upon the accomplishment of them.
  • Attending industry and venture capital conferences, bringing back intelligence for the CEO's they have invested in, and ideally introductions to prospective team members or venture capitalists for future rounds. 
  • Seeking new executives to assist the founders in building the company.  They work this in concert with management and the rest of the angel syndicate, in order to support the company’s most successful outcome.

Angel investors evaluate investment opportunities and work to seek the best opportunities to generate the highest return for themselves and their families.  They enjoy the art of the game and staying connected with industry leaders and thinkers.  They make themselves available while travelling on vacations or out on family events, ensuring the CEO and his team receive the advice and support they need to make their investment worthwhile.  

Like venture capital funds, angels sometimes have strategies they may choose to follow:

  • Early Stage
  • Late Stage, meaning pre-IPO funding
  • Life Science oriented
  • Technology oriented
  • Blockchain and Crypto Investment Funds
  • Regional Funds, as in Southern California, New York, India, or Japan
  • Both Life Science and Technology
  • Deep technology, oriented in a specific domain, such as Biopharma, IoT, Software only, Energy or Semiconductor.
  • or other approaches which fit their risk and interest appetite. 

Sometimes angel investors must be less picky than a standard fund as they often do not have the time and interest to vet the world seeking the absolutely best investment opportunity.  But angels can rely on quality networks to assist them in the process and from time to time, assist in bringing the best ventures to the top.  Regardless, despite how great a venture may look, it is still very high risk investing at the early stages, and investors should not invest that which they cannot afford to lose. 

Angel Investors are not always as financially oriented as venture capitalists and can sometimes be willing to pay higher valuations. From time to time, they are seeking strong managers whom they enjoy mentoring while participating in the future success.  Typically Angel investors do not take Board positions because the legal risks and costs of insurance which protects them in this capacity (DNO insurance) is often prohibitive.   

Angel investors are more typically regional by nature, reaching out to the local CEO’s and entrepreneurs that are in their region and field of expertise.   Some angel investors have specific preferences for companies they seek, often connected their background.  For example it is not unexpected to find a successful medical device entrepreneur or CEO, investing predominantly in this area.  But angel investors should recognize that the earliest stage of investing presents the greatest opportunity for failure and loss of capital.

Entrepreneurs appreciate Angels who have already had success in the industry in which they compete, because they recognize that venture capitalists and other prospective management will see that as a strong endorsement of the opportunity.  Angel investors typically have little to no support, and do not hire analysts or associates.  They do their diligence, research and work on their own. There are some Angel Funds that are exceptions to this rule, and teams of angel investors can sometimes fill this gap. 


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Created by SuccessTrek, 2019

Work Environment

Angel Investors typically work from home, on their own schedules.  Rarely do Angel Investors have an office either on their own, or at the company they have invested in, and generally they simply do work and set calls from an office at home.  Sometimes higher net work angels maintain a family office in an office park, and from time to time they will also have a full time manager of their funds and assets who assist in the investment decisions and documentation, once a investment decision has been made; but these are the exception.

Work Schedules

No schedule, as Angel investors are generally high net worth individuals who pick their own times and entrepreneurs often oblige.  Sometimes, angel investors decide they want to work and get involved in developing the operating plan with the ceo, helping to lead some sales calls, working on marketing initiatives with the CEO.  It often depends on the experience set, skills and desire for the angel to work out a roll, part or full time with the founder or CEO. 

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Created by SuccessTrek, 2019

How to Become an Angel Investor

Most Angel Investors are individuals who have been CEO's or successful entrepreneurs who have made a significant amount of money through their hard work over the years.  The way an individual becomes an angel investor is to simply build companies which help them to build and acquire wealth for others, and in that process, they will gain that wealth for themselves as well.  Typically they come from every industry, though the technology and biotech industries seem to be the places where individuals have been amassing the most wealth the quickest over the last few decades, giving them enough left over to consider such investments. 

The Securities Exchange Commission (SEC) generally requires that for someone to invest in startup companies that they have a total net worth in excess of $1 million.  The assets however can be in cash, investment holdings or real estate to qualify.  

Education

No degree necessary to be an angel investor.   If you have proven yourself as a successful individual and have money that you have an interest in investing in an early stage company, entrepreneurs typically do not care if you have been to college or not.  They care about your experiences, enthusiasm and knowledge about their venture and industry, and your cash. 

That said, talented people often have been to college, and engineering and sciences degrees often provide the most relevant hands out experiences prior to work in order to bring some credibility.  Additionally from time to time, there are angel groups that can be university oriented, focused upon funding entrepreneurs and having lunch with fellow graduates from top schools... ie. Harvard, Standford or MIT oriented angel investment groups.  Having a strong brands as an entrepreneur or angel, showing you have been to top  

Harsh, surgeon like decision making ablities.   Venture capitalists must be willing to make hard calls, shutting down companies to prevent good money following bad, and letting CEO's go when they feel it is in the best interest of all shareholders.  Companies and CEO’s can burn capital.  Sometimes both must be cut quickly rather than allowed to continue draining the resources that a partnership or company may maintain.  While choosing to shut companies down, sell them for a loss or fire a CEO may seem ruthless at times, the inability to make these decisions in a timely manner can also stand to risk the value of the entire portfolio.

Capable of expressing their truth. Some firms and partnerships struggle with listening to one another and sharing what they perceive is the truth about a venture, leader or opportunity.  There can become a fear where if one partner insults a company that belongs to another, then there will be retribution when that partner's company comes back to the table and needs follow on financing.  Partnerships must always know that the entire portfolio belongs to the team of investors, and dollars must be allocated in a manner to maximize them.  Failure to do so is detrimental to the investors, the portfolio and the entire fund. 

Intuitive perspectives on market trends, people and opportunities.  Venture capitalists must be able to evaluate .  To be successful,  venture capitalists must be motivated to seek out obscure information that may be important to the investment. Many work independently and must have self-confidence in their judgment.

Quick Study.   Angel investors are often have expertise in one domain, for example technology, but they may also need to source others with more up to date expertise to assist them in assessing technology or sciences in a new emerging market.  They must be able to build rapport and have a sense for the right resources to use, while also being a strong self-study who can understand bottlenecks or technological breakthroughs, and find high quality technologists and scientists to help them reach investment decisions quickly.

Smart thinker, able to lay out a case for or against and objective, clearly and articulately.  Even the most sophisticated of technologies can be broken down into its most fundamental aspects, understandable by individuals who are reasonably educated and interested in knowing its unfair advantages.  Angels must quickly get to the bottom of a value proposition and it’s position within a large market opportunity, assessing whether it will give a team an enduring unfair advantage in cost or performance.  

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Pay

Angel Investors

Median annual wages, 

Salary compensation to AngelsTypically none
Equity Position Syndicate buys often 5% to 10% of a company
Board Seats Not typical
Advisory BoardsAngels often serve in this less formal capacity, generally for no additional equity
Syndicate Angel Network Examples:  The Churchill Club
Tech Coast Angels
BitAngels
Angelist
VentureSouth
Typical Investment Amounts Individuals: $50,000 to $100,000 each

Syndicates:  $250,000 to $1M, though some can be much greater

There is not compensation for angel investors except of the equity they buy through their investments and the satisfaction they hopeful feel in coaching young entrepreneurs in being successful.  Typical syndicates of angels put together rounds of $250,000 to $1M of $50,000 to $100,000 investments each.  Angels can sometimes pay higher pre-money valuations than venture capitalists simply because for them it is sometimes more about the enthusiasm for a good CEO and opportunity, and their interests to help them, than it is for the overall return.  Angel rounds can vary in price however, pre-money valuations can run from $2M pre to $7M pre depending on the stage of the company, experience of the team, quality of the opportunity and any unfair advantages the team may have established for itself in the creation of their business.  

Once in a while an angel will decide to structure a small compensation agreement with the founder to also contribute in some part of the business, such as in sales, engineering management or marketing; but in large part, that is rare.  Also, for board positions the board members can from time to time earn .25% to 1% vested over two years; but in large part angels are advised to avoid board positions given the risk surrounding early stage companies and the propensity for high net worth people involved with the company to be sued personally.  

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Created by SuccessTrek, 2019
Image Job Summary Entry Level Education 2012 Median Pay
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Bachelor's degree
$68,150 per year
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Bachelor's degree
$51,850 per year
Budget analysts help public and private institutions organize their finances. They prepare budget reports and monitor institutional spending.
Bachelor's degree
$73,840 per year
Claims adjusters, appraisers, examiners, and investigators evaluate insurance claims. They decide whether an insurance company must pay a claim, and if so, how much.
$59,850 per year
$28.78 per hour
Compensation, benefits, and job analysis specialists help conduct an organization’s compensation and benefits programs. They also evaluate job positions to determine details such as classification a
$59,090 per year
$28.41 per hour
Cost estimators collect and analyze data in order to estimate the time, money, materials, and labor required to manufacture a product, construct a building, or provide a service. They generally specia
Bachelor's degree
$61,790 per year
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Bachelor's degree
$81,760 per year
Financial examiners ensure compliance with laws governing financial institutions and transactions. They review balance sheets, evaluate the risk level of loans, and assess bank management.
Bachelor's degree
$79,280 per year
Fundraisers organize events and campaigns to raise money and other kinds of donations for an organization. They also may design promotional materials and increase awareness of an organization’s work
Bachelor's degree
$54,130 per year
Human resources specialists recruit, screen, interview, and place workers. They often handle other human resources work, such as those related to employee relations, payroll and benefits, and training
Bachelor's degree
$55,640 per year
$26.75 per hour
Insurance underwriters decide whether to provide insurance, and under what terms. They evaluate insurance applications and determine coverage amounts and premiums.
Bachelor's degree
$67,680 per year
Loan officers evaluate, authorize, or recommend approval of loan applications for people and businesses.
Bachelor's degree
$63,650 per year
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Bachelor's degree
$74,170 per year
Management analysts, often called management consultants, propose ways to improve an organization’s efficiency. They advise managers on how to make organizations more profitable through red
Bachelor's degree
$81,330 per year
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Bachelor's degree
$62,560 per year
Meeting, convention, and event planners coordinate all aspects of professional meetings and events. They choose meeting locations, arrange transportation, and coordinate other details.
$45,810 per year
$22.02 per hour
Personal financial advisors provide advice on investments, insurance, mortgages, college savings, estate planning, taxes, and retirement to help individuals manage their finances.
Bachelor's degree
$90,530 per year
Purchasing managers, buyers, and purchasing agents buy products for organizations to use or resell. They evaluate suppliers, negotiate contracts, and review product quality.
$60,550 per year
$29.11 per hour
Tax examiners and collectors, and revenue agents ensure that federal, state, and local governments get their tax money from businesses and citizens. They review tax returns, conduct audits, identify t
$50,440 per year
$24.25 per hour
Training and development specialists help plan, conduct, and administer programs that train employees and improve their skills and knowledge.
Bachelor's degree
$59,020 per year
Funds who raise $25 to $500M often charge investors 20% carry (20% of the returns after investors get their dollars
NA
Funds who raise $25 to $500M often charge investors 20% carry (20% of the returns after investors get their dollars
25000
Chief Financial Officer devise strategies and policies to ensure that an organization meets its goals. They plan, direct, and coordinate operational activities of companies and organizations.
20000
Chief Financial Officer devise strategies and policies to ensure that an organization meets its goals. They plan, direct, and coordinate operational activities of companies and organizations.
20000
Business Development team members are sales support partners generally tasked with structuring revenue generating partnership, marketing deals and other contracts that support revenue growth for the c
25000
Business Development team members are sales support partners generally tasked with structuring revenue generating partnership, marketing deals and other contracts that support revenue growth for the c
25000
Angel Investors work with their own capital, providing the funding for companies at various stages of growth, buying ownership positions of a company while coaching the leaders to the next stage of gr
250000
Angel Investors work with their own capital, providing the funding for companies at various stages of growth, buying ownership positions of a company while coaching the leaders to the next stage of gr
250000
Angel Investors work with their own capital, providing the funding for companies at various stages of growth, buying ownership positions of a company while coaching the leaders to the next stage of gr
250000
Angel Investors work with their own capital, providing the funding for companies at various stages of growth, buying ownership positions of a company while coaching the leaders to the next stage of gr
20000
Angel Investors work with their own capital, providing the funding for companies at various stages of growth, buying ownership positions of a company while coaching the leaders to the next stage of gr
Angel Investors work with their own capital, providing the funding for companies at various stages of growth, buying ownership positions of a company while coaching the leaders to the next stage of gr
Angel Investors work with their own capital, providing the funding for companies at various stages of growth, buying ownership positions of a company while coaching the leaders to the next stage of gr
Angel Investors work with their own capital, providing the funding for companies at various stages of growth, buying ownership positions of a company while coaching the leaders to the next stage of gr

Links to Additional Information

Tech Coast Angels:  www.techcoastangels.org
BitAngels:  www.bitangels.io
Angel Capital Association:   https://www.angelcapitalassociation.org/
The Churchill Club:   https://www.churchillclub.org/

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