An angel investor is a wealthy individual who provides funding for a startup, often in exchange for an ownership stake in the company. Typically, angels, as they are known, will invest somewhere between $25,000-500,000 to help a company get started. In many cases, angels are the last option for startups that don’t qualify forstartup business loansor may be too small to interest aventure capital(VC) firm.
Unlike VCs, however, which demand aggressive 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.
See also:The Entrepreneur's Guide to Small Business Finance and Accounting
Term origins
The term “angel” once referred to wealthy individuals in the Broadway theatre community who would step up to save a production from closing its doors. Centuries before that, we had patrons, who supported artists and creative professionals financially so that they could focus on creating new works. Angels are the modern-day equivalent of sympathetic financiers.
What angel investors want to see
While angels may make the difference between a startup’s growth or closure, they are, first and foremost, investors. They are not interested in giving their money away – they do want it back at some point. To improve their odds of getting their investment back, with appreciation, angels often consider the following when evaluating businesses:
- Experience or track record of founders
- Viability of business plan
- An innovative or disruptive product or service
- Whether the business is scalable
- Existing revenue
- An exit strategy
When making a pitch to an angel, keep these points in mind.
Finding angel investors
If you believe you’re a good fit for an angel investment, you’re probably wondering how to find one. Some of the most common connections happen through:
- Lawyers
- Accountants
- Venture capitalists
- Crowdfunding sites
- Regional angel networks
- AngelList.com
Start by asking your advisors, such as your attorney and accountant, who they know who might be a fit for your company and its financial needs.