Entrepreneurs who want to raise angel funding can approach three types of potential investors: individuals, angel networks, and angel funds.

Individual angels are wealthy people looking to invest in private companies on their own. Angel networks are affiliated groups of individual investors who meet regularly to consider potential deals, but invest individually rather than as a group. Angel funds are groups of investors who pool money to invest together, usually alongside extra investments from individual members.

There's some indication that the last type is on the rise. Of the last 14 angel groups that joined the Angel Capital Association, half of them have organized funds, according to John Huston, the group's chairman, who visited BW in New York this week. On average, only 20% of the ACA's existing member groups have angel funds, he says.

Huston is also founder of Ohio TechAngels, which he says is the second-largest angel group in North America, with more than 250 members. Ohio TechAngels is organized as a fund (they're actually closing their third fund now). The group always invests $200,000, with individual angels co-investing alongside the fund and taking seats on the company's board.

Working as a fund has advantages for both the investors and their portfolio companies. Entrepreneurs know that when they approach a fund there's a baseline amount of money available. It also limits the risk to investors, because angels have their money pooled across the group's entire portfolio as well as their individual investments.

The rise of angel funds further blurs the line between sophisticated angel investment and early-stage venture capital. BW's Spencer Ante has documented the rise of "super-angels" like First Round Capital, which recently saw a big payoff when Intuit acquired Mint.

Here's what Huston says angel investors are looking for right now: startups that are highly capital efficient. They want to invest in entrepreneurs that have a clear path to breaking even before the angel funding runs out. If they don't, they need to prove they can raise venture capital when they need to. Companies that need to raise $5 million are out of the range of even the biggest angel groups, Huston says, and unless it's clear from the start that they'll be able to raise a VC round, angel investors are not going to bite.

It really is true that in order to be successful in your business, you have to know your competition very well. Knowing their strengths and weaknesses will make your business stronger.

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