Categories: GlossaryStarting Up

What is an Angel Investor?

Definition

A wealthy individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.

via GIPHY

Principles

Angels invest in people more often than they invest in ideas

Angel investors provide an enormous amount of money for startups. Because of this, they carefully choose the companies they invest in. The key to finding an Angel is to build relationships before asking for money. Also, if a founder has never started his or her company before, it is important to find a partner who is knowledgeable in that area. Trust is essential.

A complete business plan is always required

Angel investors demand a clear plan. They expect to know what is the exact problem the startup is trying to solve. They also want to be aware of what the plan is for fixing it. Create your business model and your exit strategy. Doing so allows investors to know your ideas of making money and assures them that they will get their money back.

Angel investors like to get involved directly with the team

Angels are often interested in local companies. It is possible a person will have to move from one part of the world to another to have closer contact with their investor. A related issue is the financial size of an investment. Angel investors provide up to $250K for the majority of startups. It is possible, though, that with an excellent idea a company can get all the money it needs.

Financial projections and opportunity in the right ballpark

Startups need to be disciplined and motivated. A company’s fifth-year revenue projections should be between $20M-$100M. Smaller numbers mean little return while larger ones do not seem credible to some investors. Besides, the larger the market is, the easier it is to find an investor. Angels do not usually help little businesses like local restaurants or coffee places because they seem to have limited income.

Business domain and character must be spotless

Some particular industries such as food services, gambling sites, and telemarketing have a high rate of failing and are often avoided by investors. A startup needs to make sure that their potential business is innovative and useful before talking to an Angel Investor.

History

The term was originally used to describe wealthy individuals who were sponsoring theatrical productions at Broadway Theatre. Without their help, the plays would have had to shut down.
The name came about in 1978 while William Wetzel was a professor at the University of New Hampshire. As the founder of the Center for Venture Research, he completed a study on how entrepreneurs raised funding in the US. He then coined the term angel investor when he started using the word “angel” to describe people who supported him.

The Top 3 Angel Investment Companies

Ohio TechAngel Funds

This angel network is based in Columbus, Ohio. It is made up of over 300 angel investors. This group specifically helps local companies. They also resolve financial issues of IT companies, advanced materials, and medical technologies.

Tech Coast Angels

Tech Coast Angels is a network located in Los Angeles. It includes more than 300 investors. They provide funding to businesses that are in their startup stage with a focus on biotech, consumer goods, IT, and media.

Investors’ Circle

The Angel is located in San Francisco and has over 190 individuals. They focus on financially supporting businesses working for social and environmental causes.

Image Credits: By Martin Dürrschnabel, via Wikimedia Commons CC BY-SA 2.5

Simona Marchaj

Crazy about fashion photography, in love with journalism, and would kill to have an Australian accent. Personal goal? To make sure to always find time for a good magazine and a fancy cup of coffee.

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