BizSugar.com › Raising Capital › The Funny Math of the Angel - Venture Capital Financing Gap

Much of the writing on angel investing suggests that angels fill the gap between the low amounts invested by friends-and-family, and the large amounts invested by venture capitalists. But is that true?

The story goes something like this: that business angels fill the financing gap between the $100,000 maximum seed stage investment that friends and family are said to be willing to provide — and the $5 million expansion stage investment that venture capitalists are thought to be willing to offer. Further, as the story goes, friends and family don't have enough money to invest beyond $100,000. The cost of making venture capital investments leads venture capitalists to avoid investments less than several million dollars. Therefore, companies needing between $100,000 and $5 million go to business angels.

Although this gap-filling story of the role of business angels presents a nice perspective on them, it takes some funny math for it to really be true.