Angel Financing

Angel Financing

Angel investors are individuals who are interested in investing in early stage or start-up companies in exchange for an equity ownership interest. Angel investors are likely to invest only upon seeing a business plan for a business with clear potential for profit and growth. These investors are often willing to invest in ventures that are too risky for banks or not enough profit for venture capitalists; nevertheless, angel investors are primarily motivated by a return on their investments. Another reason it makes sense to seek out angel investors is they may be willing to invest smaller amounts of money than other financing resources such as venture capitalists, discussed below.

Angel investors can be a good source of advice, guidance, networking opportunities, and other financing resources, in addition to their own angel financing. Angel investors tend to invest in businesses they believe in, are interested in, or in which they have experience. Angel investors are also typically more interested in a business's founders and management team than other investors. Although angel investors expect to cash out of their investment at some point, they may invest for five or seven years, which is longer than many other types of investors.


Finding Angel Investors

Angel investors can be found by asking your colleagues, accountant, lawyer, and friends and family. In some communities, there are specific angel networks, which networks can be found by contacting your local chamber of commerce or looking in the telephone book. Another way to find an angel investor is to perform a Web search on Google or your search engine of choice.


How Much Do Angels Invest?

Angels usually target early-stage startups and invest anywhere from $25,000 to $500,000. Angel investors often provide the seed money to get a business up and running while the founders pursue other sources of financing, such as venture capital. Anything exceeding $500,000 is considered venture capital.

Some angel investors operate as a collaborative fund. This is similar to a venture capital fund, except the number and size of investments are generally smaller.

Remember, angels don’t just invest money. Most angels invest in businesses closely related to their areas of expertise and take a significant role in the development of young companies. Often the business experience and networking opportunities angels bring to a company are just as valuable as the money they invest.