Your typical angel investor is going to have been a successful businessperson or entrepreneur that is looking to put some of their earnings to work in an investment they really feel passionate about.
Since angel investors were often successful in their own careers, having access to their experience and rolodex is sometimes even more valuable than the capital they invest.
Make no mistake, the business of an angel investor is to make money. But there is a very personal attraction to each deal that makes working with an angel investor different than going to a nameless, faceless bank.
High Net Worth Individuals
The typical angel investor is someone who’s net worth is likely in excess of $1 million or who earns over $200,000 per year. Incidentally those look a lot like the credentials of an accredited investor. Realize though, that the angel investor is playing with their own money, not invested capital, so even though they may be a high net worth individual, they are still looking at money coming out of their personal bank account.
Makes a Few Investments
Most angels invest part-time and therefore only have the resources to review a small number of deals.
Angel investors are limited by two factors – their time and their capital. Unlike professional investors (i.e.a venture capital firm), angel investors typically work with their own deal flow, which requires them to spend quite a bit of time sifting through new ideas to find something they want to dig into.
Aside from their time, angel investors have a relatively limited amount of funds to play with, so they have to be a lot more selective about who gets a check. A typical active angel investor may make just a couple investments per year.
Value Beyond Just Capital
Since angel investors were often successful in their own careers, having access to their experience and rolodex is sometimes even more valuable than the capital they invest.
The check is nice, but a strategic angel investor that can give you access to a customer that you would have never had a relationship with is even better (we all love revenue, after all). You may find that picking the right angel investors isn’t just about capital, but about access to resources you need to drive the business forward.
Gateway to Larger Capital Sources
Angels are one of the most trusted sources of new deal flow for larger capital sources such as lenders, private equity firms and venture capital firms – not to mention other angels. They may also help you syndicate your deal with other members of their angel investor group that they are a part of.
A venture capitalist, for example, relies on these angel investors to figure out whether the business has traction and momentum enough to warrant a larger investment. As such, you’re going to rely on these early angel investors to be your most valuable asset in follow-on funding as your grow.
Just about every other form of capital, like a bank loan or a venture capital investment, tends to focus on the deal and the capital. A deal with an angel investor, however, tends to be a lot more personal. There is often very little to go on in the idea stage, and the angel investor knows that. They are more likely to invest in you and your idea than the mechanics of the business itself. Later on when you start talking to larger professional capital sources, it’ll be a lot harder to get by just based on relationships and ideas.
FAQs
Most angel investors are relatively wealthy individuals who are looking for a higher rate of return than can be found in more traditional investment opportunities. They search for startups with intriguing ideas and invest their own money to help develop them further.
What are the personality traits of angel investors? ›
The characteristics of angel investors are confidence, trustworthiness, courage, and the ability to engage with others.
What is the job description for an angel investor? ›
Angel Investors performs the following functions: - a) Angel investors provide funds to small start-ups in exchange of ownership equity finance in high risk untried projects. b) They provide seed capital to finance innovations even in the pre-start up stage and in early stage of the start-ups.
What types of people are angel investors? ›
Angels tend to be individuals with an interest in business or technology who are investing a portion of their after-tax investable net wealth in working with start-ups.
What makes someone an angel investor? ›
What Is an Angel Investor? Angel investors are wealthy private investors focused on financing small business ventures in exchange for equity. Unlike a venture capital firm that uses an investment fund, angels use their own net worth.
What is the best personality type for investors? ›
Individualist Investors
They exercise independent thinking and put a great deal of trust in their investment research. For this reason, they are usually less risk averse than others. Individualist investors are usually self-made and hard working.
What best describes an angel investor? ›
An angel investor (also known as a business angel, informal investor, angel funder, private investor, or seed investor) is an individual who provides capital to a business or businesses, including startups, usually in exchange for convertible debt or ownership equity.
What is the income requirement for angel investor? ›
Requirements for Becoming an Angel Investor
To be considered an accredited investor, an individual must have at least $1 million in net worth and earn $200,000 or more annually ($300,000 as a married couple). You can find accredited angel investors online at the Angel Capital Association website.
How much money should you have to be an angel investor? ›
Angel investors can be accredited investors with net worth of at least $1 million or at least $200K in annual income. Steve Nicastro is a former NerdWallet writer and authority on personal loans and small business.
What is a risk of working with an angel investor? ›
They Might Not Have Enough Experience. Another risk of raising money from angel investors is that they might not have enough experience investing in startups. While some angels are experienced investors, others might not be. This could lead to them making poor investment decisions and losing their money.
Are angel investors wealthy? ›
Angel investors are affluent individuals who provide capital for startup companies, typically in exchange for ownership equity or convertible debt. Their typical background often includes successful entrepreneurs or retired business executives, and they possess a wealth of experience and a high net worth.
What is a passive angel investor? ›
The passive angel is the person who wants to invest money in a few firms but doesn't want to get involved. They only have financial capital to offer. Believe it or not, there are quite a few of these investors around. They aren't a particularly good fit because they don't add any value.
What are the problems with angel investors? ›
Loss of control and ownership: the most obvious disadvantage of raising financing through angel investment, is the loss of ownership and control of the company as founders may find themselves giving away between 10% and 50% of the shares in their company.
Do angel investors get paid back? ›
They'll offer you the capital needed to get the ball rolling, and in exchange, they receive an ownership stake in your company. If the startup takes off, you'll both reap the financial rewards. If your company falls flat, on the other hand, an angel investor won't expect you to pay back the offered funds.
How much ownership should an angel investor get? ›
There is no hard rule on the amount of equity they receive in exchange for financial support. The amount of equity angel investors typically seek averages around 20 percent, with some backers asking for as high as 50 percent stake in your startup.
Which of the following is a characteristic of an angel investor? ›
Expert-Verified Answer
The characteristic of an angel investor is that they provide initial funding to a business from personal finances.
What are the traits of an investor? ›
They embody a combination of traits, strategies, and a mindset that positions them for long-term success. Patience, discipline, analytical skills, risk management, continuous learning, and a strategic approach all contribute to their ability to navigate the complex world of investing.
What is the life of an angel investor? ›
Angel investors typically are individuals who have earned money through their own efforts and have real-life experience. They often invest in one or just a few businesses at a time, which allows them to be more involved and find a personal connection to the new idea.
What to expect from an angel investor? ›
They also look for investments that will yield a higher return than the stock market would, so you need to prove your business's potential. Typically, an angel investor will offer between $25,000 and $100,000 to startups in the hopes that the small company will be one of the next heavy hitters like WhatsApp or Airbnb.
