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The role of angel investors in the world of entrepreneurial finance is understood in disparate ways. Angels are viewed alternately as heroic helpers (hence the name “angel”), unqualified naïfs (“dumb money”), shrewd capitalists with Paul Bunyan-like capacities (“super angel”), and members of a larger band of likeminded individuals (part of angel syndicates). These conflicting depictions reflect the very different roles that angels play in financing startup companies.
Although angels come in many shapes and sizes, anecdotal and conceptual evidence suggest that they collectively perform an increasingly vital role in startup financing. Angel investing may not meet the formal definition of a public good, but it offers strong positive externalities and spillover benefits, including job creation by companies that hire employees with money obtained through angel financing, private investment in local business, and the creation of more and deeper connections among entrepreneurs and investors. Professor Darian Ibrahim has observed the critical function angels can perform—namely, building a financial bridge that leads startups to venture capital (“VC”) financing. On November 30, 2011, the University of Colorado Law School’s Silicon Flatirons Center convened an invitation-only private Roundtable (the “Roundtable”) with some of Colorado’s leading angel investors, entrepreneurs, lawyers, and professors to discuss the dynamics and challenges of angel investing in Colorado. The lessons from that discussion, coupled with additional research on angel investing, are set forth in this report.