An angel investor is a wealthy individual who provides funding for a startup (also known as a private investor, seed investor or angel funder), often in exchange for an ownership stake in the company.
The funds that angel investors offer may be a one-time investment to help the business get off the ground or an ongoing injection to support and carry the company through its difficult early stages.
Typically, angels, as they are known, will invest good amount of funds to help a company get started. In many cases, angels are the last option for startups that don’t qualify for bank financing and may be too small to interest a venture capital (VC) firm. Unlike VCs, however, VC’s are expecting instant revenue growth quickly; angels are more concerned with the commitment and passion of the founders and the larger market opportunity that they have identified. While angels don’t want to lose their money, they aren’t typically as focused on making a quick buck as VCs are
Typical Sources of Angel Investors
Angel investor is a very generic concept, and in a few different ways, you will actually find these types of investors. Angel investments usually come from:
- Family and friends: This is by far the most popular source of financing for start-up companies that are involved in seeking start-up capital for businesses and is the only choice for many. Given the high rate of failure of new ventures, if the company is not successful, it is also risky in terms of the potential effects on relationships. Being frank about the risk of failure is critical.
Wealthy individuals: Successful business people, specialists, attorneys, and others who have a high net worth and are prepared to spend up to (typically) Rs. 500,000 or more in exchange for equity are another good source. This is mostly achieved by business partners or organizations, such as the local Chamber of Commerce, by word of mouth.
Groups: A group of angel investors are raising their future level of interest accordingly. Investors contribute funds to the cooperative and the investments are chosen by an experienced syndicate management board.
- Crowdfunding: A form of a web based investment group, crowdfunding includes raising subsidizing by having huge group of people invest amount as little as Rs. 20,000.
What Angel Investors Want to See
Though angels may make the distinction between the creation or closure of a startup, they are first and foremost, investors. They are not interested in giving away their money at some point, they want it back. Angels also consider the following when reviewing companies in order to increase their chances of having their investment back, with appreciation:
- Founders’ background or track record in
Business strategy feasibility
- An innovative or disruptive service or product
- If the organization is scalable
- Current profits
- A strategy of exit