What is an angel investor?
New businesses have to look for capital in a variety of places. When people who start new businesses have exhausted the usual methods — their own funds, and loans obtained from friends and family — they still may not be able to get bank loans or venture capital funds. This is when businesses look for an angel investor. An angel investor uses his or her own private funds to add to the capital needed to start a business in exchange for a fairly large share of ownership in the company, usually between 10-30%. The angel investor is making a very high-risk investment, so he or she often looks for companies that have a reasonable expectation of returning about 10 times their investments within five years. Some look for companies that might return as much as 20 to 30 times an investment. Often angel investment only offers about 20-30% profit on advanced capital, but this profit is still considerable. Usually the angel investor diversifies by investing in more than one start up company, becaus
Rich Sloan: All right. It’s a great question and it’s an appropriate question for many entrepreneurs. If you don’t qualify for a bank loan, if you don’t have friends and family available to you, if you’ve got a business that requires $20,000 or $200,000 in order to get off the ground, angel investors are an interesting target for you to consider. And, Jeff, angels get their names because they are relatively friendly, relatively patient, high-net-worth private individuals and basically — Jeff Sloan: They invest directly into the company for equity in the company. It’s not a debt situation, like a bank loan. As Rich was saying, they’re high-net-worth individuals. They invest in your company. They take a piece of ownership in the company and they do take a piece of — I don’t want to go so far as to say “control,” but at the very least influence over the business. And some of that you want, because they can be great mentors. We refer to angel money as smart money, because it comes with t
An Angel Investor as defined by the Kahn Kleinman Redbook is an individual investor, generally with high net worth, providing venture capital to an early stage business. Angel investors often invest in industries or businesses that they are familiar with. An angel investor may not be as sophisticated as an institutional investor, and often may not involve themselves as much in the oversight and management of a company’s operations as a traditional institutional investor.
