Angel investors are generally considered to be among the oldest sources of capital for startup entrepreneurs. The term itself is thought to date back to the early 20th Century, when affluent theatre enthusiasts used their private capital to fund struggling Broadway plays.
Angel investors, commonly just referred to as angels, are individuals who are willing to invest in a company in its early stages, in exchange for a share in its ownership. These days, this usually takes the form of stock or convertible debt. Their investment can be a once-off injection of seed money, or a series of ongoing, smaller investments to help with specific expansion projects or to get the company through a lean patch.
Angels are not Venture Capitalists
Traditionally, angels are risk takers, and usually invest in the person, rather than the business. While they naturally want to see a return on their investment, their main motivation, more often than not, is to see the business succeed, rather than make a huge profit. This is one of the key areas that differentiates them from venture capitalists.
Traditionally, an angel investor’s approach to investment is also very different from a venture capitalist’s, in that they don’t usually spend a lot of time, effort or money conducting due diligence before investing. They rely instead on instinct and a trust of the person in whose business they are investing. They are also not beholden to anyone, and answer to no one except themselves. They are thus free to make quick decisions without having to waste time consulting with committees or partners.
Angel Groups
Angels typically invest anywhere between $25,000 and $100,000 of their own money. More recently in the relative history of angel investing, angels have become more sophisticated and institutionalized. They’ve started looking a little bit like venture capitalist. Many of them have banded together to form angel groups, in which several angels join together to pool their resources into a single investment. These angel groups typically fund deals between $250,000 up to $2,000,000. Angel Groups are becoming more and more common, and are a great way for a startup to secure a larger investment from several individuals with one set of unified terms.
Angels typically don’t invest in the very beginning of a business’s life, preferring to come in around the early stages of entry into the market, after most or all of the technical development is complete.
Most angels in structured angel investment groups are accredited investors looking for a great team with a good market and a potential return of at least 10 times their investment in five years.
Visit VerifyInvestor.com to find out more about becoming an accredited investor, or finding one for your business.
