If you are familiar in the landscape of start-up and business financing, you must have heard the terms ‘angel investors’ before.
What exactly is the angel investor? What they really do and how they’ve come to be known as angel investors?
And most importantly, what are the pros and cons of angel investors to business?
Let’s explore this together!
What Is Angel Investor?
In short, angel investors are usually a high net worth individual who provides financial backing for small startups or entrepreneurs, providing them with capital for expansion and growth.
Angels usually offered businesses more than just cash, normally they will also offer their expertise in the industry as well as contacts/connection passed to the entrepreneurs.
Typically, angels search for or expect for high ROI for the cash that they put inside new businesses.
Besides, there are a few things that angles would normally look when choosing a budding business to invest:
- The quality, passion, commitment, and integrity of the founders.
- The market opportunity being addressed and the potential for the company to become very big.
- A clearly thought out business plan, and any early evidence of obtaining traction toward the plan.
- Interesting technology or intellectual property.
- An appropriate valuation with reasonable terms.
- The viability of raising additional rounds of financing if progress is made.
Advantages and Disadvantages of Angel Investment
Getting help from angel would be less risky compared to other forms of financing like bank loans. Unlike loans, invested capital from angel does not have to pay back if the business failed.
Angel investments would be perfect for businesses that are established enough but are still early enough in the game that they need capital to develop a product or fund a marketing strategy.
Or they can be in need some cash to kick the enterprise to the next level. Not only can an angel investor provide this, but he or she might become an important mentor. Because their money is on the line, they will be highly motivated to see your business succeed.
Typically, angels will receive a percentage of business ownership (anywhere from 10 to more than 50 percent) in exchange for the financing that they bring in. This means that your angel investor will have a say in how the business is run.
Angel investors, of course, would like to see an end game down the road that will allow them to pocket their winnings, whether it is a public offering or your business getting acquired by another company. You might have to give up running your enterprise before you’re done having fun with it.
With debt financing, the lending institution has no control over the operations of your company and takes no share of the profits.
Where To Find Angel Investors?
You might be thinking that angels usually work alone in solidifying their investment. Although that is the case, there are angels who move and operate in groups. You can easily find angles associations that is established in your region/country.
Angels work in groups as this will help them identifying potential new start-ups and bearing the risk together. They also pool their funds together.
Second, you can find angels from people who are close to you like friends and family. This is, by far the most common angel investors that can is used by the new companies out there. As the rate of new businesses fail is getting higher and higher, it is important, to be frank, and honest about the risk to the potential angels in your family and circle of friends.
Third, you can seek help and funding from wealthy individuals who are willing to invest up to $ 500,000 in return for equity. This is where connections and networking is very important.
Finding funds to scale up your business is not easy, and angels are usually the first lending hand that you can rely on. In order to increase the likelihood of angels investing in your business, you should have a proper and good business plan and stable cash flow.
By preparing these, you will be able to secure investment from investors and next, taking your business to a new level.