What is an Angel Investor?
An Angel is usually a private person who invests in small businesses. The Angel is generally a successful businessperson or entrepreneur who looks to invest in a business that has potential for growing their investment in the future.
Angels are mainly successful entrepreneurs who may have retired. Angels can also be made up of friends and relatives who simply want to invest in a business where family are involved and where there is potential for good gain in due course.
They are obviously wealthy and have sufficient extra capital to invest in a growing business in return for a share of ownership of that business. They supply funds at various stages of the growth process of the business and are more involved in the start-up phase, rather than in the other phases later on.
Angels also have a lot of experience in running businesses, so they can assess an investment opportunity and will invest if they feel that the risk is small. They usually like to invest in businesses that are located within a reasonable distance from their home and their reasons are varied, including not only economic, but also personal.
What do Angel Investors look for?
Angels seek companies that have high growth potential and that have products or services, or an invention that has an attractive future profit growth. Angels also are concerned with the management of the business and it is in this area that many Angels may get themselves personally involved.
Angels can bring their own experience, as well as their business contacts which are all important factors in the success or otherwise of the venture. Those who do not want to take an active day-to-day role in the business can take on a management type involvement by serving as a consultant or as a member of the board of directors.
Because of the amount of money Angel investors usually put at risk in a business investment, they are a lot easier to secure than going for the larger funding from the likes of venture capitalists. Typically an Angel would invest anywhere from between $10,000 to $500,000, especially in the start-up phase of the business development.
What is an Angel Network?
An Angel network is a group of organisations that work as a team to introduce business entrepreneurs to possible investors. Their role is to be a facilitator or party that introduces Angels to investments and to the potential of those investments. They are not really brokers or business advisers as such, because their main function is to bring together the two parties.
These Angel networks vary in size and in makeup and can include other businesses, business development groups, government agencies, and even academic bodies and institutions. They are all usually non-profit groups whose sole reward is to see successful businesses brought about because of a partnership with Angel investors.
The Advantages of Business Angel Finance
Obtaining funding for a new business venture is never easy. In fact, it is very difficult because of the risks involved and because the whole idea or venture is unproven. Many entrepreneurs come across many disappointments when trying to seek funding for the initial development of their business idea and they give up.
If your business is new, too risky or unproven to qualify for the usual methods of generating business funding, and if it is too small or with insufficient substance or potential to get the attention of venture capitalists, then you may need to look for an Angel for finance.
Many businesses have grown and become large successful corporations because at the early stages an Angel or a few business Angels banded together to provide the capital necessary and the start-up at the early stage of the business.
The biggest advantage of business Angel finance is that they do not require security. This means that they are suited especially to those business that have little in the way of assets, but whose main asset amounts ideas or inventions, or copyrights they possess. Their main asset may simply be intellectual capital only.
Angels do not require security because they purchase a share of the business by taking in equity or shares in the company. Another advantage of business Angels is that they are much easier to secure than venture capital or bank finance.
The reason is because an Angel can be anyone that they entrepreneur comes across, whether a relative or an associate, or simply a professional investor who is involved in small business financing.
One of the biggest advantages an Angel brings to a business is their valuable experience and skill, which can be just as advantageous to the business as capital. There is little gain in your business if you borrow $½ million from an Angel investor, only to see it frittered away and lost because you did not have the management skills or the experience to capitalise that investment capital.
Copyright 2005 StartRunGrow