Fool's Gold?: The Truth Behind Angel Investing in America (Financial Management Association Survey and Synthesis Series) [Hardcover]

Scott Shane (Author)

Book Description

Series: Financial Management Association Survey and Synthesis Series | Publication Date: November 12, 2008

The stereotype of the "angel investor" is a retired wealthy entrepreneur who sees potential, asks tough questions, takes a large stake, and in a few years makes a massive return in an IPO. This outsider fills the gap between the venture capitalist and the professional investor, swooping in with cash and expertise to bring dreams to fruition.

Unfortunately, Shane observes, this figure bears no relationship to reality. In Fool's Gold, he draws on hard data from the Federal Reserve and other sources to paint the first reliable group portrait of the lionized angel investors. Surprisingly, he finds that they are fewer, contribute less, and involve themselves in fewer start-ups than the conventional wisdom suggests. Most angels typically still have their day jobs, make investments of $10,000 or less, and take little or no role in assisting entrepreneurs build their companies. Few of the companies they put money into arrive at IPOs, let alone massive returns. But angels can play a critical role, he writes, if the fantasy is abandoned by all concerned. Drawing on his rich store of data, Shane offers recommendations to entrepreneurs and angels alike for the most productive use of angel investing, and suggests how policymakers can encourage it. Particularly promising are angel groups, which pool knowledge and money for wiser and more productive investments. In groups, angels can rely on each other's expertise, share the labor of performing due diligence, and generally insure that their money is being placed--and used--wisely. Fostering the formation of such groups may be the single most important thing that government can do to boost angel investing.

Massively researched and briskly written, Fools' Gold offers the first real resource on this misunderstood aspect of our entrepreneurial system.

Editorial Reviews

Review

"The story of angel investing is long on opinion and short on data; this book does the opposite and makes a valuable contribution to this emerging financing niche with a practical and skeptical data centric approach to understanding what is going on in the world of angels." --Ian Sobieski, Managing Director, Band of Angels

"What do we think we are doing? Scott Shane shows that we're not consistently targeting the best investments, or the best terms; that we're not as professional as venture capitalists--and our results reflect this lack of focus. Become a professional angel investor; start here to first learn the mistakes and omissions that angel investing is fraught with."--Frank Peters, Chairman, Board of Governors, Tech Coast Angels, Host, theFrankPetersShow.com

"Venture capitalists, policy makers and entrepreneurs should read this book and take note. Scott Shane has uncovered the mythology surrounding angel investing by examining the facts and drawing crystal clear conclusions. I would thoroughly recommend this book to anyone, especially VCs, aiming to understand how they should engage with business angels in the future"--Simon Barnes, Venture Capitalist with Tate and Lyle Ventures

"Finally, the truth! Follow the facts in Fool's Gold? It is the entrepreneurs' guide to angel investing."--Barry Moltz, angel investor, entrepreneur, and author of Bounce

"There is so much confusion today in the market place regarding start-up and angel financing. Having a definitive, factual based book about the subject is not only refreshing but a 'must have' if you are contemplating using this form of financing for your new company. Understanding how to finance your new company is such an important decision, learn as much as you can about that process by owning this book."--Randall Bambrough, Silicon Valley CFO and Lecturer at Santa Clara University

About the Author

An angel investor with the North Coast Angel Fund, and a professor of entrepreneurship at Case Western Reserve University, Scott A. Shane is the author of Illusions of Entrepreneurship, among many other books and articles.

Product Details

• Hardcover: 288 pages
• Publisher: Oxford University Press, USA (November 12, 2008)
• Language: English
• ISBN-10: 0195331087
• ISBN-13: 978-0195331080
• Product Dimensions: 9.4 x 6.3 x 0.7 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (6 customer reviews)
• Amazon Best Sellers Rank: #1,082,369 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

8 of 8 people found the following review helpful:

5.0 out of 5 stars The essential read on angel investing for investors, entrepreneurs, and public policy makers, October 28, 2008

By 

Jonathan Eckhardt - See all my reviews
(REAL NAME)   

This review is from: Fool's Gold?: The Truth Behind Angel Investing in America (Financial Management Association Survey and Synthesis Series) (Hardcover)

Scott Shane is one of the most widely published scholars on the topic of entrepreneurship. In Fool's Gold: The Truth Behind Angel Investing in America, Professor Shane turns his disciplined methodology and logic towards unmasking commonly held misconceptions about angel investing. His effort yields accessible yet robust inferences about a little understood business activity.

This book provides the reader with a rigorous review of the landscape of Angle investing, with an eye towards examining the feasibility of commonly held beliefs. The strength of the book lies in the analysis reported in Chapters 2 through 6. However, Chapters 7, 9 and 10 are important for those interested in considering becoming active angel investors.

Shane's book is not a how-to investment classic, as this book does not provide the reader with specific tools on how to become a better investor. However, this book is an imperative read for angel investors, public policy makers, and entrepreneurs. Why? Shane's efforts have yielded the best book for acquiring a rigorous review of the landscape of Angle investing. Legendary investor Ben Graham wrote that investors should study business history. This book fits this tradition, by providing the reader with an analytical report on the background and context of Angel investing in the United States.

8 of 9 people found the following review helpful:

5.0 out of 5 stars The topic: Angel investing and angel investors - the inside scoup!, October 24, 2008

By 

Jeff Lippincott "JLIPPIN" (Princeton, NJ USA) - See all my reviews
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This review is from: Fool's Gold?: The Truth Behind Angel Investing in America (Financial Management Association Survey and Synthesis Series) (Hardcover)

I liked this book very much. It's the second book written by this author I have read. And I cannot praise it enough. The topic: Angel investing and angel investors - the inside scoup. The book has 231 pages and 12 chapters. I urge you to examine the Search Inside material provided by Amazon so you can study the book's Table of Contents.

Each chapter has a "Key Facts to Remember" section just before an end-of-chapter "In Conclusion" section. I found the chapter titles to be very helpful in telling me what the book was about. But I also got lots of insight into the contents of the chapters by reading the key facts and conclusion sections. This book was really easy to read as a result.

If I had one gripe with the book I felt as though the author was arguing many of his points rather than simply stating them as facts. I don't think the book needed as much argumentative prose as it included. I agree with everything the author says about the nature and reality of angel investors and angel investing. But he could have been a little more succinct in his presentation of his points.

I've read a few books that talk a little about angel investors and investing. But there are only two I think are worth mentioning besides this one. The first is the original Rich Dad Poor Dad book. The "rich dad" refered to in that book was an angel investor. And many of the lessons Robert Kyosaki talks about in the Rich Dad books are a result of what he learned from that angel investor. Kyosaki says that angels have to be accredited investors. The instant book being reviewed says they don't. My understanding is angels only have to be accredited investors if you market your business as an investment to them. It's the act of marketing that forces the necessity of the angel to be accredited. But that's just my understanding of the subject.

The other book I read where angel money came into play was Maxine Clark's "The Bear Necessities of Business." Part of her seed money came from an angel she knew. She didn't market her idea to get money - so she didn't have to expect the angel to be an accredited investor. I think the angel investor who sunk money into Ms. Clark's venture qualified to be an accredited investor though.

The main point I got from this book is that angels don't provide all that much capital for start-ups or small companies. They are not like venture capitalists for the most part. And they certainly are not an easy group of individuals or companies to find and/or get hold of. On top of all this, there is a ton of misinformation in print and online about angel investors and investing. My recommendation: get a copy of this book to get the best picture possible of what angels are all about and whether you might be able to use one in your company's financial needs. 5 stars!

4 of 4 people found the following review helpful:

5.0 out of 5 stars Don't Let Misconceptions Prevent You From Getting Angel Funding, November 30, 2008

By 

Anita Campbell "Editor, Small Business Trends... (Cleveland, Ohio) - See all my reviews
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This review is from: Fool's Gold?: The Truth Behind Angel Investing in America (Financial Management Association Survey and Synthesis Series) (Hardcover)

If you've ever thought about seeking angel investment capital for your business, there's a good chance you will start the process with some misconceptions. Same goes if you are thinking of becoming an angel to invest in other businesses.

For instance, you may have had the notion that individual angels are rich -- or at least very well off -- and invest a lot of money in each business. Not necessarily so, says this book.

I recommend you spend some quality time with this book if you are interested in seeking angel funding. It could save you some mis-starts and get you pointed in the right direction faster.

This is a book stuffed full of facts and study data. If you wanted to know, say, whether your retail business is a good candidate for angel investing, the book will tell you (answer: yes, 25% of angel investments are made in retail businesses).

You might wonder how a book of facts and data could help you as an entrepreneur. That's easy. From information gleaned you can get a much better idea of such things as:

- why angels invest (it may be as much about having a hobby as making money)

- how angels decide on which businesses to invest in (with less investigation than you'd expect)

- how angel investors come up with valuations and what kind of ownership interest they will expect (most don't do formal valuations and they demand smaller ownership stakes than you might expect)

- where and how to find angel investors (hint: look locally)

All of these things will help you understand how to appeal to angel investors.

The writing style is crisp and direct. Despite the many figures and statistics scattered throughout, it's relatively easy to read and comprehend.

You should get this book if you are serious about getting angel investment or if you are thinking of becoming an angel investor yourself.