What Is an Angel Investor?

What Is an Angel Investor?

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An angel investor also known as a private investor, seed investor, or angel funder is an affluent person investing in startups in exchange for equity or convertible debt to help them grow. Their main purpose is to help startups take their first steps in business. They use their own wealth to invest and usually believe in ideas and founders and invest their money based on the trust factor. On the other hand, venture capitalists use investment funds and expect high returns. Angel investors definitely put a lot less pressure on founders and are patient about their profits but after a certain time, they too want their exit and generally expect it in a public offering or an acquisition.

Pros of Using an Angel Investor

The most important advantage is of course the financial support that angels provide. But it’s not the only advantage you’ll also have their expertise which you can utilize to grow your business. An investment from angels is a better option than a loan because you won’t have to pay it back and also because they will provide mentoring or direct management help.

Cons of using an angel investor

You are giving away part of the business so this dilution will result in the dilution of some control as well. Not all your ideas are going to align with theirs so there are chances of potential conflicts. And there will obviously be some pressure from the angel’s side, for they will expect returns from the business.

Who Should Use Angel Investors?

It totally depends upon the founders. The involvement of Angel investors in your business has its own pros and cons as we have discussed above, so weigh them and see what’s best for you. If you find someone who resonates with your ideas and innovations, then getting investment and expertise from them will accelerate your business growth.

How do you find angel investors?

There are many platforms connecting entrepreneurs and angel investors. You can find one by creating your profile on these platforms. Another way is through LinkedIn, which has a great network where you can directly contact your potential investor. Also, there are a lot of local business groups or schools, you can ask them to connect you with angel investors. Make sure to keep your business plan ready for investors, they’ll need it to see the potential growth opportunities.

How to Become an Angel Investor

The very first criterion is that you need to have enough wealth. Secondly, you need to register as an accredited investor with the U.S. Securities and Exchange Commission (SEC). For registering your minimum income requirement is $200,000 per year and a net worth of at least $1 billion. After that, you have to see different ideas, innovations, and startups and recognize the investment opportunities. Then schedule meetings and see if you resonate with the startups. You can also use crowdfunding platforms to invest in new-found startups. And the best way to become an angel investor is by investing in someone you already know either personally or professionally.

That was all about angel investors, the pros and cons of using an angel investor, and how to Become an Angel Investor. Both using and becoming angel investors is a personal choice and completely depends on the individual’s perspective. So think carefully and speed up your business or investment game.