Angel investments: Philanthropy, guile or gambling?

Angel investors are an interesting lot. They typically invest in start-up or early-stage companies, but such investments can be risky. Folklore suggests that, for every ten investments that an Angel makes, four will fail to provide any return, three will return the original investment, two will do reasonably well (2–5 times return), and one will do very well (5–10 times return). Sometimes this approach works (in terms of providing a positive overall return over a five to ten year period), and sometimes it doesn't.

Without wishing to sound cynical in any way, what motivates an angel? Generally speaking, they are wealthy individuals who have worked hard to build a capital base. Why would they risk eroding their base by making risky investments? I suspect many Angels are adrenalin junkies—gamblers even—where the possibility (and thrill) of high returns are simply too great to ignore. However this is not the case for all Angels. Some see their investments as philanthropic donations, to assist the next generation of entrepreneurs. Others are well-informed, astute and shrewd. Regardless of their motivation, Angels provide a much-needed source of capital for entrepreneurs—to test their ideas and try to get them off the ground. Bill Gates, Rod Drury and Sam Morgan are all beneficiaries, and look at them now!