Angels and upstarts

Good piece in the Economist on business angel investment on both sides of the Atlantic, playing up the friction that can occur between angels and professional VCs -
Typically, a business angel is willing to invest between $25,000 and $250,000 in each of between five and ten new ventures. They expect to make money from the spread of investments, but [Jeffrey Sohl, director of the Centre for Venture Research at the University of New Hampshire] believes they also seek “psychic income”. Angels want the satisfaction of putting their commercial acumen, contacts and practical knowledge to work on behalf of talented people whom they like.
Such sentiment may explain why professional venture capitalists can often be critical of business angels. “Angels usually overvalue businesses. This makes it difficult for us to come in later on,” says one. Another adds: “Angels interfere in businesses, particularly in Britain where they have less experience.”
Mr Sohl agrees that there can be problems, cautioning would-be entrepreneurs to make careful inquiries into any prospective investors. “Finding out about your investors before you sign them up is critical,” he says. “And you have to understand what everybody wants from the business. It's a marriage without the possibility of divorce. If you can't make it work, bankruptcy is the only alternative.”

The article also takes for granted the existence of the 'equity gap'. Recent research from Library House (also discussed in the new Real Business) suggests there's no such gap in the UK. I'm not convinced by their analysis, but it is a question that demands further examination.