Angel investors are high-net-worth individuals who invest their own money into a company, and receive equity shares of that company in exchange. Angel investors in the world of entrepreneurialism are individuals with a high net worth who invest their own money into early-stage companies, usually in return for an ownership stake. The investments make angel investors an attractive financing option for startups who do not require a major investment and who wish to maintain greater control of their company. Support — Angel investors are interested in high-potential, high-growth startups that have the potential to make large returns on their initial investments.
Angel Investors – One Time or Continuous?
This makes angel investing ideal for entrepreneurs that are still struggling financially in their startups stage. The capital angel investors invest in businesses can serve either as a one-time infusion of money to help a start-up take off, or provide an ongoing funding stream that keeps the business going during its challenging early stages. For most early-stage startups, angel investors are a bridge between funding on their own or by soliciting funds from friends and family, and getting investments from seasoned VC firms. Angel investors typically seek out promising startups at the stage of seed or Series A funding, and provide these businesses with much-needed injections of cash to help them take off.
The funds angel investors offer can either be one-time investments that help a small start-up or an entrepreneur get off the ground, or ongoing injections that sustain and take the business through the roughest of first stages. Angel investors typically represent individuals, and the entities actually providing funds can be a limited liability company (LLC), business, trust, or investment fund, among several other types of vehicles. Unlike venture capital firms, which use investment funds, angels leverage their net worth.
Angel Investors Vs Venture Capital Firms
Because angels generally consider other factors beyond the potential returns of an investment, some entrepreneurs have found them easier to work with and offer more favourable terms than VCs. Angel investors offer more favorable terms compared with other lenders, as they are generally investing in an entrepreneurs ability to launch the business, not in the businesss viability. Compared to VCs, angels can also be more patient with entrepreneurs and willing to give smaller dollar amounts over longer periods.
According to Calloway Cook, President at Illuminate Labs, most angel investors will trust the judgement of a companys founders and not attempt to influence the companys decisions, since they are investing smaller amounts of money. According to Calloway Cook, president of Illuminate Labs, Most angel investors will trust the judgment of the company founder rather than try to sway business decisions, because they are investing less money. Lone angels (those investing outside the Angel Group) are exposed to less deals, are less capable of doing their own due diligence, and, due to their smaller, less diverse portfolios (i.e., all of their eggs are in one or two baskets), are less capable of taking losses from investments, which can lead to their not making further investments. Like all investors, angels can be extremely valuable resources in terms of both capital and overall knowledge about the business.
Investing in Stock Market
Compared with investing in a stock market, where angels may buy or sell, startups provide an opportunity to positively impact the results of their investments. Angel Investments: Instead of receiving capital from a venture capital firm, startups may attract wealthy individuals or angel groups, with the prospect of receiving equity in exchange for equity, which is also free from debt. Most entrepreneurs first fund their company using their own savings, but angel investing, where the angel invests his own money directly in a startup, can be crucial for a companys success, when done in the right timing.
Disadvantages Of Using Angel Investors
If your company goes the distance and starts turning a profit, you will need to pitch your angel investors some of this money, depending on how much equity you gave them for their initial investment. With angel investment, you are basically gambling your credibility and reputation on how far your company will take — but not taking a lot of financial risk. If you accept an angel investment, expect to give up some control over your company — and the equity you are offering to the investors may be substantial enough that it has significant implications for your ability to run your company the way you want.
In the early days — especially if you are new to the world of startups — you may find yourself excited by most opportunities you encounter, and ready to put a relatively big chunk into each one. Now, if I were going back I think I would apply my rule about investing in founders rather than investing in businesses more fundamentally, shares Chris Mayrs CBE, a venture partner with Entrepreneur First and a prolific angel investor with over 100 companies in his portfolio. Angel investing presents a fascinating opportunity for young businesses to access capital and receive the support of seasoned advisers.