What is an angel investor? These are people who invest in businesses, looking for higher returns than they would see from usual forms of investment. In return for their financial support, angel investors are greatly involved in the business. They are usually the bridge from the self-financed phase of the company, to the point that it requires a financial support that venture capitalists would offer. Funding estimates differ but typically range from $150,000 – $1.5 million.
Cash-strapped entrepreneurs searching for additional capital might be curious about angel investors. However, only few start-ups will get an investment from angels. In 2007, less than 60,000 companies obtained angel funding; a pretty small figure considering that many businesses are launched every year. However, for the right small businesses, these kinds of funds can fill the gap between the venture capital that they hope to secure and the money they’ve obtained from family and friends.
Angel investors use their own disposable finance and professional or business experience to invest in the expansion of a small business, usually in its early stage or start-up period. They can make investments as part of a group or on their own.
Angel Investor Job Description
As an angel, one would make his own decision about making the investment, and in return for giving equity finance, would usually take shares in the company. In doing so, an angel will be sharing not just his money, but also his knowledge and expertise in managing a business. Aside from having the potential to get a return on his investment, he will also have the satisfaction of seeing a business succeed.
There are lots of entrepreneurs out there with great growth potential and business ideas. Providing equity finance and access to advice, market contacts and skills can be the best way to help businesses accelerate their growth and attain commercial success. Being an angel investor can be both rewarding and enjoyable. On the other hand, just like all financial investments, it does carry rewards and risks.
Before making investments or receiving any investment proposal from entrepreneurs, an angel investor needs to make sure that he can certify himself as either a sophisticated or high net worth investor. Remember that an angel makes investments in a high risk opportunity only when an investment return is expected. These investors usually seek scalable businesses with a clear path to profitability and great potential for growth. In recent memory, angel investors have been interested in excellent start-ups, in fields like life sciences or technology, though more and more angels are looking into mission-based areas and other sectors.
Angel investors won’t be interested in businesses with inadequate plans to enter new markets or expand. Considering that such investors hope to earn money through taking equity in a company and realizing large gains when the company goes public or is sold, they usually do not invest in lifestyle enterprises like retail shops, local restaurants, small consulting firms or businesses that have limited earnings potential.