What Is an Angel Investor?
An angel investor, often called a business angel or informal investor, is a wealthy individual who provides initial investments to startup companies. Unlike venture capitalists, an angel investor typically operates independently, focusing on early-stage business ventures.
Understanding Angel Investors
Angel investors are not just any wealthy person. They are experienced individuals, often with a background in entrepreneurial ventures or industries related to the startup. Many hail from regions known for innovation, like Silicon Valley. They differ from venture capital firms in that they invest their own money, not pooled funds.
Sources of Angel Funding
The primary sources of angel funding include:
– Angel Networks: Communities like the Angel Capital Association that connect startups with potential angel investors.
– Networking Events: Where entrepreneurs can meet individual angel investors and discuss potential partnerships.
– Angel Investment Networks: Online platforms that link startups with a community of angelÂ
investors.
How Angel Investing Works
An angel funder usually offers capital in exchange for equity in the company. This means they get a share of the business. Sometimes, they might also seek a board seat to influence the company’s direction. The goal? A high rate of return during liquidity events like a sale or IPO.
Advantages and Disadvantages of Angel Investing
Advantages:
– Initial Investments: Angel investors provide the crucial funds that a startup company might struggle to get from traditional banks.
– Mentorship: Experienced angel investors often offer invaluable advice and industry insights.
Disadvantages:
– Equity Sharing: Entrepreneurs give away a part of their company.
– Potential for Conflict: Different visions between the investor and entrepreneur can lead to disagreements.
What Should You Look For In An Angel Investor?
When seeking an angel investor, consider their background in relation to your industry. Their network, entrepreneurial venture experience, and angel network membership can beÂ
invaluable. It’s not just about the money; it’s about the partnership.
Frequently Asked Questions:
– Do angel investors get paid?
They aim for a return on investment, usually through equity growth or liquidity events.
– What are the risks of angel investors?
The primary risk is the potential loss of their investment if the startup fails.
– Why are investors called angel investors?
The word “angel” originated from Broadway, referring to affluent people who funded theatrical productions.
