Why We Need ‘Angel’ Investors

As the Republicans fight for the presidency, there�s been a big brouhaha over capitalism. Of course, the candidates are trying to stop Mitt Romney�s momentum by saying he is a �vulture investor.� Funny enough, this seems like the type of criticism that would come from the Democrats — not Republicans!

And it�s true that some investors are not necessarily nice or altruistic. But they do something that does take some guts: writing checks for risky ventures.

If anything, it�s this kind of activity that has led to the emergence of companies like Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and Zynga (NASDAQ:ZNGA). Most of the founders of these companies were 20-somethings that had little money, but of course, they had tons of ideas, creativity and passion.

When it comes to early-stage investing, founders have few options. They can beg for money from friends and family. They can also max out their MasterCard (NYSE:MA) or Visa (NYSE:V) cards. But usually, that won’t get the job done.

Founders need outside investors. And in the early stages, these usually are individuals known as �angels.� They are wealthy folks — sometimes top executives or former company creators. While they love the excitement of new ventures, they also want the chance to make another fortune. Who doesn’t want to find the next Facebook or Twitter?

So how is angel investing faring in the U.S.? It�s not easy to tell, as the market still is somewhat opaque. But several organizations have been finding ways to track the progress.

For example, the Institute for Private Investors estimates that 55% of wealthy investors are focusing more on investments in early-stage private companies. This is based on a survey of 1,100 people who are worth at least $30 million.

Then there is the�Venture Research department at the University of New Hampshire. Based on its data, the first half of 2011 saw $8.9 billion in angel investments, up 4.7% from the same period in 2010. In all, more than 26,000 companies got funding, which resulted in 134,130 new jobs.

Now, it’s important to note that many of these businesses will fail. That�s a natural part of capitalism — and really its strength. But through the winnowing process, we�ll eventually see great innovative companies emerge over the next few years.

Tom Taulli runs the InvestorPlace blog�IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of��All About Short Selling��and��All About Commodities.��Follow him on Twitter at�@ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.