Angel Investing is the practice of High Net Worth Individuals (HNWIs) investing their personal time, money and expertise (including sharing their professional networks) into early stage businesses in which they have no family connection, with the aim of getting these businesses to grow and realizing a financial return on their investment over the long-term
Angel investing is a form of private equity investing that often takes place in the early stages of a company’s development. However it can also occur in more mature companies.
Angel Investors also invest their intellectual capital into a business while often times providing access to influential networks. These are core components of angel investing and can significantly improve a company’s probability of success. A business angel typically aims to take a more active role in the business than a traditional passive private investor, hoping to use his/her knowledge and experience, to help the business succeed. In exchange for their financial and intellectual capital, angels often require equity in the company and are therefore committed to the business and its success. Angel Investors will also want an exit to realize a return on their investment and will generally shy away from making an investment if an exit opportunity is seen as highly unlikely.
The motivation of angel investors is another thing that separates them from other type of private equity investors such as Venture Capitalists and PE firms. Angels are more interested than just a financial return; they want to get involved with innovative companies, they enjoy the process of building companies, and they have a desire to support entrepreneurs. Angels are also looking to give back to local economies by investing in young people and companies, where they believe they can add value by passing on their own experience and expertise.
It is critical for entrepreneurs to grasp that angel investors are looking to invest in companies that are beyond the idea stage, they are looking for evidence of customer engagement. Angels will look more kindly on companies that already have, or are close to having actual revenues, and likely to look les kindly on companies that are only looking to fund a prototype. As such, while there are angels who will fund companies at the very early stages of development, most angels want companies to already or close to making actual revenue before they consider making an investment.
Find out more about angel investing by downloading infoDev’s angel investor guide from the link below