If you’re new to investing, you might be confused by some of the jargon. “Angel investor” might get thrown around a lot, but what exactly is one? How are they distinguished from other investors who invest in start-ups, like venture capitalists? Well, in a nutshell, angel investors are experienced individuals who invest their own capital in start-ups, usually as much out of enthusiasm for the company or its idea as for any financial motive. Read on to find out what an angel investor is in more detail.
What is an angel investor?
Angel investors (or business angels) are typically high net worth individuals who provide capital for a start-up, usually in exchange for debt or equity. Unlike other investors in start-ups, however, they usually place less emphasis on benefiting monetarily from their investment. Instead, they tend to be interested in investing in start-ups which have passionate CEOs, a novel product, and the potential for fast and strong growth – it’s more about the start-ups being exciting and innovative than guaranteeing a return within three years, so angel investors tend to be more patient than other investors.
Angel investors are also typically older, retired entrepreneurs, investors or businesspeople, who will often have a background in the same industry they’re investing in. As well as capital, it’s expected they’ll offer advice, support and contacts to the start-ups they invest in, and often they will join the board of directors – so they’re giving their experience as much as their financial support. Angel investors are investing their own money, not acting on behalf of a fund, unlike venture capitalists – by investing directly, they’re able to get to know the company and so can better contribute their own expertise.
Angel investors don’t just invest alone – often they group together for crowdfunding angel investment. In this case a lead angel will often come forward to interface most closely with the start-up, serving on the board and providing contacts and guidance.
What are some examples of angel investors?
Angel funding is actually quite common, and most angel funding does not come from household names, although of course angel investors are still experienced and tend to be affluent. However, there have been a number of very famous angel investors. Jeff Bezos, CEO and Chairman of Amazon, is also an angel investor, investing in analytics and data distribution platform Domo and digital learning platform EverFi. Max Levchin, co-founder of PayPal with an interest in sensor technology, has invested in Misfit Wearables, which produces wearable sensors and fitness trackers, and was acquired by fashion designers Fossil Group in 2015. Both angel investors have invested in areas where they have a lot of expertise and where the start-up is innovative and can do some good, so these are solid, typical examples of big name investors providing angel funding to small start-ups.
So angel funding is a great way for people who are experienced in a field and want to help start-ups get off the ground. Especially if you feel that you have experience to offer fledgling companies, consider becoming an angel investor – not only is it potentially lucrative, it puts you in contact with a range of exciting, innovative start-ups that are poised to transform their respective industries.