Who is an angel investor?
An angel investor is a high net worth individual who provides financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company.
Angel investors are often among an entrepreneur's family and friends. Other times, they're individuals who seek out high-growth companies in which to invest. Angel investors can provide one of the first rounds of institutional funding for a business.
They may provide one-time investment or an ongoing capital injection to help businesses grow in their struggling early stages. These investments are very risky and are generally not more than 10% of an angel investor’s portfolio.
“Your job as an angel investor is to block out the haters, doubters, and small thinkers, because if you think small you’ll be small. I’d rather see my founders fail at a big goal than succeed at a small one.”
- Jason Calacanis (Angel Investor, Founder of Weblogs)
Want to learn about the origin stories of founders like Jason Calacanis? Check all our founder stories here.
Why go to Angel Investors?
Unlike Venture Capitalists, angel investors fund entrepreneurs using their own money. The funds from angel investors can range from a few thousand to a few million dollars, depending on the nature of the business.
Many first-time founders are surprised to learn that they can already have a good idea of who their angel investors might be. If you haven't talked to anyone yet about investing in your company, now is a great time to take stock of your personal network.
Having an angel invest in your business is more than just getting money; it's often a long-term relationship with someone who can help provide advice and contacts down the road.
You may want to seek out those who are experienced in areas where you want or need help (marketing, sales, etc.) and make sure you're clear on what kind of support you hope for moving forward.
Angel Investor vs Venture Capitalists
The biggest difference between Angel Investors and Venture Capitalists is the money they invest. Angel investors are typically high-net-worth individuals who invest their own money whereas Venture Capital firms pool money from many sources to create a large fund used to make investments.
Angel investors usually invest in startups at the seed stage or early stages (idea, concept, prototype) of development. Typically, an angel investor will provide funding for startup capital in exchange for convertible debt or ownership equity.
Venture capitalists are professionals who have expertise in specific industries and often take seats on the board of directors of your startup once you have received funding from them.
How can you find an angel investor?
There are several ways you can find angel investors. Here are just a few:
- Online platforms like AngelList or the Angel Capital Association will help you get into contact with angels.
- Investment networks or angel investor groups that bring together like-minded people who may be on the lookout for new opportunities.
- Friends and Family, they may be the ones who can invest in your startup/business idea during the first round.
Who can become an angel investor?
Angel investors make up one subset of private equity investors. Accredited investors are those with a net worth (either by themselves or jointly with a spouse) of more than $1 million and earn an annual income greater than $200,000 per year (or $300,000 per year joint income).
Business angels are another type of private equity investor that falls into the category of angel investor. These business angels invest in small startups or entrepreneurs and can provide capital for seed money, startup money, or expansion.
Angel investors, as well as business angels, may choose to work alone or join together in angel groups or syndicates. Angel groups and syndicates consist of a group of angel investors who pool their money together for investment into a new venture.