Justin Timberlake, who plays the founder of music-sharing service Napster in a recent film about social networking website Facebook, is among them. Ashton Kutcher, who rose to fame in the role of a handsome, dim-witted teenager in U.S. sitcom “That 70s Show” has probably become the most prominent among them in Hollywood.
Even teenage heart throb Justin Bieber, at just 17, is rumored to be among the growing number of angel investors who invest relatively small amounts of their money in companies that are developing new technology.
Early investors in companies such as Google , Apple and Facebook have made, or look set to make, eye-watering return on their investments.
And with interest rates on savings accounts at record lows and uncertain returns in the stock market, investing in technology start-ups has become increasingly appealing.
Douglas Dundonald, director at Anglo Scientific, which raises funds for start-ups, says that one of the attractions for investors is that tech start-ups are a very different asset class.
“I don’t think it’s people who love technology per se (who invest in tech start-ups),” he told CNBC. “I think it’s people who are intrigued by smart ideas which can deliver a really interesting product or service into a market that they know and understand. Those are the types of investors we like to attract.”
Anglo Scientific partners with scientific groups, usually from British institutions, to form equal partnerships. It combines business skills and the ability to raise funds with scientists who have come up with smart ideas.
But Dundonald cautioned that investing in tech start-ups was not for those who are out to make a quick buck.
“It typically takes somewhere between five and ten years before you secure a significant return on your investment, and it will take multiple rounds,” Dundonald said. “Typically a technology investment will take four or five rounds of investment in order to become profitable.”
“Our investors are fairly patient. They’re usually interested in the sector that we’re investing in,” Dundonald said.
“They should expect to invest something like 5 million pounds ($7.9 million) in the business over time before we get to cash flow break-even and see a return which might take two or three years after the last round of investment.”
Phaser Solutions is an example of a tech start-up funded through investments from both private individuals and from venture capital firms.
It makes chips for so-called phased array antennas, which are relatively low cost, flat antennas with no moving parts, suitable for going on the outside of the fuselage of an airplane or the roof of a train.
They’re designed to replace conventional parabolic antennas, which are big and bulky.
Private investors invest anything from 5,000-10,000 pounds ($7,900-$15,800) up to 100,000 pounds ($158,500), Henry Hyde-Thomson, founder and chairman of Phaser Solutions, told CNBC.
“You can lose your money, so it’s not for the faint-hearted. The benefit is that you can make a lot of profit. Ten times your money might be an expectation for an early-stage investor,” Hyde-Thomson said.
Dundonald also warned that sometimes, the technology that’s invested in is subsequently overtaken by another firm’s technology.
On the other hand, some experienced investors have managed to get returns of more than 1,000 percent, he said.
He advised those interested in tech start-ups to invest in something that interests them and which they understand.
“This tends to be about making a decision which is a bet, ultimately,” he said.
It is therefore a good idea for investors to spread their bets over two or three investments, or maybe more, he said.
Gordon Povey, CEO of Pure VLC, which is creating a faster and cheaper Wi-Fi known as Li-Fi, hopes the funds raised for his company will not only go to furthering prototypes but will also fund a planned commercial rollout.
The company believes it will soon be able to produce download speeds of 1 gigabit per second. Average broadband speeds in the UK are currently around 7.6 megabits per second.
Many start-ups fail to make it. But the risks can also outweigh the potential returns.
“You can get a very substantial bit of blue sky,” Dundonald said.