The Angel Investor is a specific type of investor that will invest in early start-up stage companies. They are investing their own money and are almost always making their investment decisions separately as opposed to in a group of investors.
Angel Investors are often looking to get a healthy return from their investment, however there are others that have done well and want to give back to the community, helping to develop opportunities for others.
Angel Investors are more likely to make a smaller initial investment than a Venture Capitalist would. IN fact, Angel Investors are most likely to get in with investments in the range of $5,000 to $250,000 and often plan for adding additional funds in future rounds.
Angel Investors need to understand that they are taking a significant risk with their investment as success to failure ratios can be as high as 1 out of 10 deals. Given that risk, Angel Investors will often expect to make ten times their money and be able to get their investment back our in 3 to 5 years after the investment.
Depending on how the deal is structured, Angel Investors may be at risk by dilution from future investors as well.
Angel Investors are making their decisions on how much they believe that the entrepreneur is able to execute on the Start-Up. It really is an emotional decision. That means that Angel Investors are really looking specifically at the entrepreneur and not necessarily the business. While it is critical to have a business plan and projections, it is not so uncommon that the Angel Investor will not understand the entrepreneur’s projections.
Friends and Family in most cases are able to become Angel Investors in your business, however, outside of that circle, you’re investors must be qualified investors and sign a subscription agreement that states they are qualified to invest.
Common careers for Angel Investors include, doctors, dentists, professionals, entrepreneurs, sales people, retired executives and local philanthropists.
Angel Investors are often introduced by people that you may know such as employees, families and friends. Never underestimate a potential source for Angel Investors. The person that doesn’t appear to have the money necessary can often turn out to be one of your biggest investors.