What is an angel investor and how he can help you to start your business? The first and foremost concern of every struggling business setup is the funding. Here comes, angel investors who give you initial funding and may ask you for equity and royalties in return. Angel investors could be entrepreneurs, investors, small business owners, and crowdfunding campaigns.
You can never go wrong by involving angel investors because you have no obligations, you can get bigger funds, and work alongside experienced investors. However, you may have to compromise on giving equity.
In this article, we will discuss what is an angel investor, how angel investing works, seeking potential investors, and its possible pros and cons.
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What Is An Angel Investor?
What is an angel investor and what do you need to know about them? They are rich people who are willing to fund business startups. An angel investor gives out funding from his/her net worth to the business which is at the initial stage. Business owners sell out their idea, if they like it, they proceed with the funding.
You will be glad to know, the terms of angel investors are more understandable than other regular lenders, who will have many demands. Angel investors want small businesses to grow and flourish. If you are a small business owner and looking for an angel investor?
Then, you will be delighted to know that angel investors focus more on facilitating business entrepreneurs than the business itself.
Angel investors seek equity, as they have no hold over the company’s assets. They will expect ownership in any manner to make their capital secure. Besides that, angel investors always make an exit strategy so that they can cut ties with you if situations don’t go smoothly.
Does an angel investor pay one time? The good news is they may be along with you for the long haul, and can pay you modestly shortly as well.
Role of Angel Investing In Your Business Ventures
What is an angel investor’s role in your next business endeavor? As their name suggests, they will be giving out funds. Here, let’s learn how their funding process is carried out:
Initially, angel investors will connect with you (aka business owners) and will hear out your plan. If your plan is worthy enough, they will make a deal with you verbally.
If you and the angel investor have both agreed, the investor will connect with his founders. A contract and a sheet will be drawn.
After that, agreements, payouts, equity percentages (usually 25% is demanded), and the investor’s exit strategy is drawn out.
After the deal is closed, legal documentation is done. The funds are decided and then released to the business owners.
The role of angel investors can be only at the initial stage, or they may continue giving you smaller amounts in the future.
How To Find Potential Angel Investors?
What is an angel investor’s whereabouts? Angel investors are usually entrepreneurs and wealthy people, so obviously you can’t approach them at your coffee corner. There are some platforms and sources that allow you to connect with them.
However, before approaching them, you should have your business idea properly planned. So, once you have found your angel investor you can sell out your ideas and get the funding.
- LinkedIn: No wonder, a professional platform to seek out angel investors. You can connect with one, share your idea, and let them know. Are they up for your idea or not?
- You can contact local business groups around you, who can help you build seamless connections with potential angel investors.
- Want to initiate a business? Looking for the potential investors? You can find the best ones on the platform, named ‘Angel List’.
- There is another online network ‘Angel Investment Network’, there are approx. 279K investors are registered here. You can create your profile, and start seeking investors. You have to articulate your plan. If they find it good enough, they will offer you an investment.
It is neither easy nor complicated to find the best investors. But be careful while choosing one. We don’t want you to end up with an inexperienced one.
Merits of Angel Investing
What is an angel investor good part you need to know of? If you are a beginner, and you have a great idea, and looking for the funds.
- More Cash Injections: Angel investments seem to be a great idea when you know you may need more funding in the future. Angel investors may give you further cash, besides their seed funding.
- Experienced Investors: You can get lucky, how? You get an experienced investor who has knowledge of business and shares your valuable advice. It can help to make your business flourish.
- Liberty: You can do your business more liberally, as angel investors don’t oblige you for a lot of things. They will ask for just equity and you can run your business the way you want.
Do you think associating with angel investors will be feasible? By seeing these merits, I suppose you will do great by connecting with them. Their modest funding can help you greatly in achieving your long-term goals.
Demerits of Angel Investing
What is an angel investor drawback list, and how to tackle them? Angel investments don’t come with all the benefits, there are still cons to it.
- First of all, you may get your seed funding to establish your business. But you are not that naïve to assume that it won’t ask for something in return, are you? You will have to give equity and you will be surprised to know that it’s more costly than debt financing.
- What if you end up with an inexperienced investor? My wishes are with you because you are in deep trouble. Because they won’t only give you useless suggestions but will annoy you constantly for updates.
- Would you like to give the reins of your business to investors? No, you won’t, as it snatches control from you. They will intervene in literally every matter and will be a huge drawback to your business startup.
Do you think these disadvantages can bring down your business? For that matter, you have to lay out your concerns to the angel investors at the very start to avoid inconvenience.
Investments Funded By Angel Investors
How much funding you can have from angel investors? The average angel investment is estimated to be $330,000. The angel investors syndicate (i.e., a group of Angel Investors) can invest as high as $1M. If we look over individual investors, the funding is pretty low and rounds around $10-200K.
Concluding what is an angel investor and how it can bring substantial change to your business startup. You can seek out potential angel investors at LinkedIn, online angel investment networks, angel lists, and via local business groups and campaigns.
Their role includes giving out funds to you after hearing about your business idea, If it appeals to them, they will continue giving out investments, and if you maintain balance and give them their equity. They may provide you with modest sums in the future as well.
You will be lucky to have entrepreneurs as investors because you will build healthy relationships and you will get valuable suggestions. They may ask for great equity, sometimes exceeding 25%, and that is concerning.
What do you think of angel investors so far? Give your feedback in the comments section.
FAQs on What Is An Angel Investor
Who qualifies as an angel investor?
A person who has a great net worth and can facilitate small business owners by giving out funding and demands for equity.
Are angel investors good or bad?
Well we can simply they, this kind of investing is high risk. S you have no guarantee of you succeeding out, you may fail miserably.
Do angel investors get paid?
Yes, but they are usually paid back in terms of equity. It could be one-time or they may get payments in series.
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