What Is an Angel Investor?
An angel investor (also remembered as a private investor, seed investor or angel funder) is a high net worth individual who provides financial backing for baby startups or entrepreneurs, typically in exchange for ownership equity in the company. Often, angel investors are found among an entrepreneur’s blood and friends. The funds that angel investors provide may be a one-time investment to help the business get off the ground or an ongoing injection to living expenses and carry the company through its difficult early stages.
Angel Investor
Key Takeaways
- An angel investor is usually a elated net worth individual who funds startups at the early stages, often with their own money.
- Angel investing is again the primary source of funding for many startups who find it more appealing than other, more predatory, natures of funding.
- The support that angel investors provide startups fosters innovation which translates into commercial growth.
- These types of investments are risky and usually do not represent more than 10% of the angel investor’s portfolio.
Conception Angel Investors
Angel investors are individuals who seek to invest at the early stages of startups. These types of investments are touch-and-go and usually do not represent more than 10% of the angel investor’s portfolio. Most angel investors have dissoluteness funds available and are looking for a higher rate of return than those provided by traditional investment opportunities.
Angel investors attend to arrange for more favorable terms compared to other lenders, since they usually invest in the entrepreneur starting the duty rather than the viability of the business. Angel investors are focused on helping startups take their first vestiges, rather than the possible profit they may get from the business. Essentially, angel investors are the opposite of venture capitalists.
Angel investors are also roused informal investors, angel funders, private investors, seed investors or business angels. These are individuals, normally affluent, who introduce capital for startups in exchange for ownership equity or convertible debt. Some angel investors invest through crowdfunding podia online or build angel investor networks to pool capital together.
Origins of Angel Investors
The term “angel” moved from the Broadway theater, when wealthy individuals gave money to propel theatrical productions. The term “angel investor” was inception used by the University of New Hampshire’s William Wetzel, founder of the Center for Venture Research. Wetzel completed a study on how entrepreneurs swarmed capital.
Who Can Be an Angel Investor?
Angel investors are normally individuals who have gained “accredited investor” status but this isn’t a requisite. The Securities and Exchange Commission (SEC) defines an “accredited investor” as one with a net worth of $1M in assets or more (excluding personal castles), or having earned $200k in income for the previous two years, or having a combined income of $300k for married couples. Conversely, being an accredited investor is not synonymous with being an angel investor.
Essentially these individuals both procure the finances and desire to provide funding for startups. This is welcomed by cash-hungry startups who find angel investors to be far various appealing than other, more predatory, forms of funding.
Sources of Funding
Angel investors typically use their own notes, unlike venture capitalists who take care of pooled money from many other investors and place them in a strategically managed fund.
Even so angel investors usually represent individuals, the entity that actually provides the funds may be a limited liability players (LLC), a business, a trust or an investment fund, among many other kinds of vehicles.
Investment Profile
Angel investors who spore startups that fail during their early stages lose their investments completely. This is why trained angel investors look for opportunities for a defined exit strategy, acquisitions or initial public offerings (IPOs).
The things internal rate of return for a successful portfolio for angel investors is approximately 22%. Though this may look good for investors and sound too expensive for entrepreneurs with early-stage businesses, cheaper sources of financing such as banks are not usually available for such question ventures. This makes angel investments perfect for entrepreneurs who are still financially struggling during the startup aspect of their business.
Angel investing has grown over the past few decades as the lure of profitability has allowed it to become a unmixed source of funding for many startups. This, in turn, has fostered innovation which translates into economic tumour.