The number of organized angel investor groups has increased almost 60% in the last three years, from 150 in 2002 to 250 in 2005, according to a new study by the Angel Capital Education Foundation and the Ewing Marion Kauffman Foundation.

"Angels have gone from investing as individuals and sometimes forming ad-hoc groups for certain investments, to creating formal groups with robust investment processes," said Marianne Hudson, executive director of ACEF and entrepreneurship director at the Kauffman Foundation.

ACEF promotes education and research in the field of angel investing and is part of the Kauffman Foundation, a Kansas City, Mo.-based nonpartisan group that works to advance entrepreneurship and education.

Angel groups are made up of a number of wealthy individuals who pool their resources and invest in deals that may be higher in quality than what they could have invested in alone. Individual investors who join an angel group do so for a variety of reasons, according to Hudson, including diversifying their portfolio, learning from their peers, sharing the workload, and the enjoyment of working with like-minded investors. 

"Many of today's angel investors are far more educated about investment in great part thanks to such sophisticated angel groups who have shared best practices," Hudson said.

The study surveyed angel group members of the Angel Capital Association, a professional alliance of 200 angel groups the U.S. and Canada, and found that in 2005, the average angel group invested $1.45 million with each individual investor contributing an average of $33,236 per deal.

The survey also found that the average angel group has 41 members, has been in operation for 4.3 years, made an average of 5.46 investments in 4.49 companies last year. The groups studied were also shown to have a preference for investing in the medical device and software industries, along with software and biotechnology companies.

Angel groups are creating a new type of capital for high-growth, early-stage entrepreneurs who need between $100,000 and $1 million in equity funding. The individual angel investor usually contributes no more than $100,000 and venture capital firms start their funding in the $2 million range, Hudson said.

"Venture capital firms are making larger investments in later-stage companies," Hudson said. Angel groups close the financial gap between the individual angel investor and venture capitalists.

For companies in search of angels, Hudson suggests connecting with other entrepreneurs already backed by angel or VC funding, as well as local bankers, accountants, and community leaders. "Finding the right investor is all about networking in your community," Hudson said.