Angel investors, also called private investors, are wealthy individuals who infuse a startup company or an entrepreneur with cash or capital in exchange for ownership or convertible debt because they believe in the company and think it will succeed. Angels are different than venture capitalist because they fund the endeavors personally and usually want to entrepreneur and business to succeed for more reasons than just profits.
These investors participate in the funding of a startup company because they believe in the business idea or in the person who invented it and they offer a one-time investment to get the business moving. Alternatively, they may fund a business on an ongoing basis, especially if there are hardships at the early stages.
Besides funding the business in significantly better terms than a bank or other lender, an angel investor offers expertise and a valuable network of contacts, seeking to see the business propel.
Understanding Angel Investors
Angel investors are individuals who seek to invest at the early stages of startups. These types of investments are risky and usually do not represent more than 10% of the angel investor’s portfolio. Most angel investors have excess funds available and are looking for a higher rate of return than those provided by traditional investment opportunities.
Angel investors provide more favorable terms compared to other lenders, since they usually invest in the entrepreneur starting the business rather than the viability of the business. Angel investors are focused on helping startups take their first steps, rather than the possible profit they may get from the business. Essentially, angel investors are the opposite of venture capitalists.
Angel investors are also called informal investors, angel funders, private investors, seed investors or business angels. These are individuals, normally affluent, who inject capital for startups in exchange for ownership equity or convertible debt. Some angel investors invest through crowdfunding platforms online or build angel investor networks to pool capital together.
Sources of Funding
Angel investors typically use their own money, unlike venture capitalists who take care of pooled money from many other investors and place them in a strategically managed fund.
Though angel investors usually represent individuals, the entity that actually provides the funds may be a limited liability company (LLC), a business, a trust or an investment fund, among many other kinds of vehicles.