Angel Investor

Angel Investor

What are angel investors

Angel investors are high-net-worth individuals who invest their own money in early-stage companies or startups, usually in exchange for an ownership stake. A typical angel investment ranges from $25 000 to $100 000, but figures can vary depending on the business size. Beyond cash, angel investors provide valuable knowledge and skills and act as mentors to growing companies.

Angel investors vs. venture capitalists

Angel investors provide capital to companies in return for ownership. So do venture capitalists. Let’s see the differences between them.

Angel investors

Venture capitalists

Status

An individual

A company

Source of funds

Own money

Fund investors’ money

Average funding amounts

Under $1 million

Over $1 million

Type of business

Startups and small businesses

Medium to large companies

Investment stage

Early stage

Mostly later stage

Control in the company

No (only advisory role)

Yes (board seat)

Advantages and disadvantages of angel investing

Raising capital from angel investors has several advantages over other funding methods.

  • Angel investments are less risky than bank loans because the invested capital does not have to be paid back.
  • Angel investors share their industry expertise and business contacts as they hold an interest in your business.
  • They can join your business at a very early stage.

On the other hand, there are some disadvantages of angel investing.

  • Angels take a 10% to 50% ownership stake in exchange for financing, which means you give up some control.
  • Finding the right angel investor can take time.
  • Since angels provide their own funds, the invested capital may be lower compared to venture capitalists.

How to find an angel investor

The easiest way to find an angel investor is to search through services such as Angel Capital Association or Angel Investment Network. Upload your business proposal to the website (it is confidential) and wait for a perfect match with investors.

Don’t forget about networking. Local conferences, business forums, and industry events can be a great chance to find your angel investor. Finally, many successful startups attracted family members or friends as angel investors. So take a closer look at your surroundings.

How to become an angel investor

Today, anyone with financial capabilities can become an angel investor. But before 2016, you had to be an “accredited investor” and have an individual annual income of $200 000 or a net worth of at least $1 million.

Why become an angel investor? Some seek high returns (but the risks are high, too). If it all works out, angels can earn 100 times their initial investment or even more. Others are passionate about business and want to support local entrepreneurs and share their expertise. No matter the goals, angel investors are very important to small business development.

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2022-07-27 • Updated

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