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Angel Investors

Angel investor makes capital available for startup business in exchange of transformable debt or equity ownership. They provide support to startup at very initial phase where risks of failing the startup are comparatively high and at that time most investors are not willing to backbone them. Sometimes angel financers are recognized as angel funder, business angel or seed investor. The main reason for calling them “angels” is that they’re eager to put their money into prevaluation startups, which may have a tough time to them to find fund source.

Detail description

Generally, angel investor provides capital support to new or small business venture for startup or expansion. Basically they are either a single individual investor or group of person who create a fund or have some vacant unused cash and observing for a higher rate of return than the customary investments. The investment by angel investors during initial stage is just to carry the operations through its early stages.


Angel investors are very significant for minor and average sized enterprises because they provide management support from their experience along with money. They contribute their services in business just to make the startup successful by infusing knowledge and expertise. They are literally very rich and well off persons with great business knowledge. Another advantage of having an angel investor is they lend unbelievable reliability to the company. The name of an influential and experienced man works as a catalyst for the progression of a business.

Importance of angel capital investment

  • Angel investor plays an important role for the economic development by providing the risky capital to startup that will leads to implementation of projects with some new ideas and upgraded technology.
  • The main aim of venture capitalist is to put more focus on passion and commitment of the founders who identify the large market opportunities.
  • Due to initial phase of funding, startup becomes more reliant on angel investors as they offer loans on comparatively easier rate of interest as compared to venture capital investors.
  • Angel investments are impeccable for businesspersons who are financially stressed during the early phase of their business. The actual internal rate of return that must be expected is 20% to 30% from a successful portfolio.

Advantages of angel investors

Angel investors works as a fuel to the startup or new business. Along with this there are some of the advantages which are as follows:

  • Funding available - Angel Investors bear high risks and provide funding to new avenues. They invest their funds in a very initial phase of business when no person ready to invest or support. Even banks and other financial institutions also not ready to offer a loan.
  • Flexibility - Banks and financial institutions are very strict about the criteria or norms that they put on borrower for obtaining the loan. But in case of angel investors, there is no set of heavy regulations from which new business has to cross over for getting funding.
  • Expertise - Apart from funds, angel investors also provide expertise assistance to startup firm.
  • Success - The firms who got funding from angel investors have higher survival rates, faster growth rates as compared with others.

Disadvantages of angel investors

Some of the disadvantages of angel investors are:


  • Investor expectations - Angel investor anticipate heavy returns on their investments as they bear more risk While investing. Profit expectation is around 10 times of their primary investment. Investors always strive to make it big successful business venture so that they can get expected returns from them.
  • Loss of control – Angel investor often becomes the part of business after making the investment. They get control over the affairs of business decisions. After getting the control, they run the company by their own terms to make it successful and from this founder feel insecure due to loss of control over the business.
  • Restricted funding – First angel investor make investment in the startup and analyze the working of company, if he assures that company has strong profit making agenda, after onwards investor infuse additional.

How startups search the angel investor?

Angels investor can be classified into two collections affiliated and nonaffiliated. An affiliated is someone who has some sort of contact with business. A nonaffiliated angel has no connection with the business.


The affiliated angel category includes:

Business associates: Business associates are the people who are currently associated with the business and with whom business makes interaction during the trade.

Contractors: The person with whom business contracts to run the company just like vendors, suppliers. They are very useful source for as affiliated angel investor as they show vital interest in company's success. Investment of supplier can be in form of better payment terms other than cash. Angel investor can make investment in kind also.

Customers: It is the customer only who uses the products on daily basis. If the quality of product is good and it gives the impression to the customer that the start-up could be successful if it maintains the goodness. They can also come forward to support them or startup can also make the list of all the customers with whom a business has good sort of relationship.

Employees: Key employees of startup who have unused funds and wants to make investment and startup knows about it then founder can approach them for investment or can say as a business loan. There is no greater motivation to an employee than to share ownership in the organization for which he works.

Competitors: These include owners of comparable companies with whom a startup don't directly compete. If a competitor is doing business in another sector of the country and doesn't make any infringement within the territory, he may be a compassionate investor for the startup.


The nonaffiliated angel category includes:

Intermediate executives: Angel investor makes investment in other small business for two reason either they lose the interest in their current jobs or they have unused cash and wants to use the knowledge via investment in new startup.

Entrepreneurs: These angels are already prosperous in their own industries and desire to invest in other excited ventures.

Entrepreneurs: These angels are already prosperous in their own industries and desire to invest in other excited ventures.To approach an affiliated angel is just like to make an appointment with them and discuss the project but when we look for nonaffiliated angels, a startup has to make efforts through telemarketing, networking and intermediaries, publicity etc.


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FAQ's

Donors don’t give to institutions. They invest in ideas in which they believe

  • Who can be the angel investors?

    Angels come in two varieties, one is the investors with whom startup has some relation or others are the non-familiar investors.

  • Define an angel fund investment?

    An angel fund investment refers to a money pond formed by high net worth individuals or companies for investing in new business startups. It’s only possible for wealthy individuals to make or owned up the fund.

  • What do angel investors want in return?

    Angel investors bear heavy risk so they have expectation to get their money back in form of high returns from the entity in which they invested. They are looking for a higher return on their investment than they can get on the stock market.

  • How do angels support small business?

    Top angel investor guides and coaches their portfolio companies that ensure to lead the healthy growth of startup along with the capital financing.

  • How venture capital investors vary from angel investors?

    Angel investors have high net worth and invest their own money into new startup companies whereas venture capitalists are the investors who invest other people's money which they grasp in expressions of fund into companies.

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