An Angel Investor is a Wealthy Individual (individual angels) or an organization that provides financial support for Start-Up Companies in exchange for equity. The investments may be in the form of capital, loans, debt, convertible debt, or gifts. Typically, an angel investor will invest up to $250,000 (depending on the startup phase) into a new and growing business throughout an acquisition or public offering.
Angel Investor is a wealthy individual who provides capital to startups in exchange for an equity stake.
The process begins when the angel funder and company agree on the amount of equity shares and company valuation. The entrepreneur will keep founders’ stock and voting rights, while angels will get common shares with no voting rights.
The term “business angel” was first used as early as 1975 to describe these investors, and it has since been used as the name for organizations that support these individuals and help them connect with startups looking for funding.
Angel investors invest their money into startups because they believe in the founders’ vision and have hope for future success. Among angel investors who fund successful companies with more than $25 million in assets is Mark Zuckerberg, whose contributions helped him become a multi-billionaire within nine years of starting Facebook Inc.
An angel investment comes from a private investor who wants to see their money go towards investments they believe will make a difference. They give relatively small amounts of money to companies or organizations that they believe will be successful and get a high Rate Of Return.
Professional Angel investors have a different approach to business than the general public. They are more focused on the big picture, preferring to invest in startups that are part of the next big thing rather than companies that will succeed based on past successes. Angel names such as Paul Graham and Kevin Rose demonstrate this with their investments in Twitter and techspeak.
For example, angel investing has been going on in Silicon Valley for over a decade, and it has helped launch some of the most successful businesses in the world. The best way to start investing is to find a millionaire you can trust and ask for advice.
In contrast, venture capital funds and investment funds look for more firmly established startups, using their expertise to navigate foreign markets. Venture capitalists take on far greater risk than angels do, and they often invest much more significant sums of money into these startups. But they get a return on their investments threefold or fourfold higher than what an angel investor would get. However, venture capital firms are typically looking for deals sold or spun off as separate Portfolio Companies within three to five years.
How to raise capital from angel investors?
There are several ways to get angel funding. The first is to approach them directly with your idea for a new company and convince them that you are the right person to take it over. They will then fund your idea, as well as helping with the business plan and marketing aspects of it. This is not always easy to accomplish, especially if you’re starting a business that has never been done before.
Angel investors are typically extremely busy, and they may not have the time to get involved in your business. They also don’t like to give money away for free, so they won’t be interested if you approach them with no idea of what you need funding for.
If you convince an angel investor that your business will succeed, you will have to prove yourself to gain their trust.
Benefits of angel investing
The main benefit of getting funding from angel investors is that they are accommodating in the early stages. They provide capital and their experience to help you move forward. Angel investors are also more likely to keep your company going if the market doesn’t take off as expected. The downside is that you can also expect more of a “hands-off” approach from an angel. This could be good or bad, depending on how you look at it.
In contrast, the main advantage of raising money from venture capitalists is that they are much more involved in your business and provide guidance and expertise. They usually invest significantly more significant sums than angels, which allows you to scale up your business much faster.
Angel investing is a form of risk capital that injects cash into a business in exchange for equity or partial ownership. Business angels have typically experienced entrepreneurs with a track record of building and selling companies. They invest their own money in early-stage businesses, often providing their initial working capital.
The exit strategy can be defined as how an investment is converted from investment to cash. The most common exit strategies involve either an IPO or M&A transaction, but other options exist, such as royalty payments or secondary sales to other investors. For founders who need to acquire funding again in a short timeframe, a successful exit can provide them with leverage when pitching their next venture to investors–especially if there’s been significant growth in the interim.
In conclusion, it’s not enough to want money from investors. To get funding from an angel investor, you need to show them how your business will make them successful. Don’t forget to come prepared with an effective business plan for your idea and the potential revenue your company will bring in.