An angel investor is an individual investor who provides funding for early-stage or start-up companies. Because companies can feel as though they face impossible hurdles at the beginning, these individuals seem like “angels” who swoop in and provide divine (financial) intervention.
Angel Investors Vs. Venture Capitalists
Angel investors and venture capitalists serve similar functions, since they both provide funding to high-risk start-ups. However, venture capitalists generally operate on a much larger scale.
For example, some venture capitalist firms have high minimum investments (such as $3 million), while angel investors typically donate smaller sums. Also, venture capitalists become more involved in a company’s development, and demand a seat on the company’s board of directors.
An angel investor, on the other hand, aims to have a simpler relationship with the company; most angels do not spend considerable amounts of time helping entrepreneurs build the company.
Whereas venture capitalists usually have scientific or industry-specific experience and join together with firms, angel investors are usually well-connected, wealthy people who contribute their own personal money. They often only seek out a perfunctory understanding of the business, and do not want positions as board members.
Many angel investors like to stay “under the radar” so they are not flooded with applications; others have joined angel groups, which can sort through business plans and select a few entrepreneurs to make presentations at regular meetings.
If your company needs extra support in addition to funding, then venture capital might be more appropriate. On the other hand, if your company consists of a small group and your business model or product is very simple, angel investors may be right for you.
The Rise of Angel Investors
Why are more and more businesses turning to angel investors? In the past, many entrepreneurs needed the support of a venture capitalist with experience in manufacturing to help oversee the construction of a factory. However, many of today’s popular start-ups deal with more intangible and Internet-based ideas. Now, a few individuals in an office (or garage) can create the next big idea — they just need a lump sum of case from one angel investor to make it happen.