Angel investors are wealthy (accredited) individuals, often-retired entrepreneurs or executives that take an interest in startup investing. They often have a particular interest, such as technology or food ventures. Angels fill a critical gap between friends and family seed funding and venture capital, and typically take an equity stake, or debt that converts to equity. Unlike venture capitalists, which pool money from institutions and wealthy investors into investment funds, angels invest their own money. As the field has grown, individual angels have organized into groups to share deal flow and due diligence (vetting of companies). Today there are angel networks across the country.
Angel investors will tell you that they invest in people more than ideas. So keep in mind, it’s about you, your passion and expertise. Do your homework before you approach an angel or angel group to make sure it’s a potential fit.
- Angels are willing to take more risk and invest at an earlier stage than other investors, such as VCs and banks
- Hands-on approach, offering advice, mentoring and introductions that can help a young company.
- Angels are often willing to take a chance on an entrepreneur who has passion and ability, but has not fully figured out her business plan
- Flexible use of funds without burden of paying down debt
- Forfeit sole ownership, anywhere from 10% to 50% or more
- Typically smaller amounts than venture capitalists, usually less than $1 million
- Angels want to see an exit so they can recoup their investment, by either an IPO or acquisition.
- Time consuming: may be difficult to find
- AngelList is a platform that connects tech-focused startups with angel investors
- Angel Capital Association is the official industry alliance of over 100 of the largest angel investor groups in the U.S.
- Gust is a platform that connects startups and angel investors
- Angel Resource Institute a nonprofit that provides education and information on best practices of angel investing