What are Angel Investors? 4+Things You Should Know

What are Angel Investors? 4+Things You Should Know
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What are angel investors? This article is aiming to explaining definition, types of angel investors, and how to look for angel investors. Let’s get in.

What are Angel Investors?

Angel investors are individuals who invest in early startups. Other names used for the angel investors are seed investors, angel funders, and private investors. They are high net worth individuals who provide capital for the startup business looking for funding. In exchange for investment, they take up equity ownership in the venture.

To explain it more openly, they are individuals who have extra cash to invest somewhere. And in return, they are expecting a higher return, so they usually demand a 25% return. They fall under the equity financing. Whereas most of the non-established startups employ equity financing as they need cash to fill their early-stage cashflow requirements.

What are the pros and cons of Angel Investors?

We have already comprehended, “What are angel investors?” There are certain benefits and disadvantages of having an angel investors for starting or scaling up your startup. Here are some of the advantages and disadvantages you have to bear when you decide to opt for angel investment.

Advantages

One of the significant benefits of angel investors is the less risk associated as compared to debt financing. In case of a loan, you have to pay a loan no matter if your business fails or succeeds. Whereas there is no such obligation in the case of angel investors. Most of the time, angel investors are looking for a partnership along with investments. It also serves as a benefit for the startup founder to make the angel investor partner of their business.

Disadvantages

The main disadvantage of receiving funds from the investment is the loss of control over your business. If you know something better for your business, you cannot implement it on your own. You have to convince your angel investor before applying it. Besides, the investor of business has the authority to intrude in the way a business should run. No matter if he knows nothing about ABC of running a business. If you use debt financing, you are not answerable to the lender about your actions.

Hence there are certain benefits and disadvantages with each mode of financing. Still, one reason to prefer angel investments by most people involves a hassle-free process. You don’t have to fill lengthy forms, provide old statements, and tax invoices. If you are on one page with your angel investor, you are all set for the venture.

What are the types of Angel Investors?

After answering the question”what are angel investors’ pros and cons?”, the next question striking to mind is how and where to find them! You can find an angel investor for your business around your friends and family or colleagues, or community. There are the following types of angel investors.

Friends and Family

They are one of the first sources you will be looking for when starting a business. The motivation for the family and friends investors is personal association with you. And it is considered as one of the basic finance sources. But you are forgetting something; The high rate of startups’ failure can not be ignored! Try for the best and be prepared for the worst! You might lose the relationship along with the money invested. Furthermore, you might have to bear the undue interference of your friends and families into your business.

Your Business Friends or Colleagues

Your old colleagues or business friend can be a great choice to make your angel investors. Why? They can be a support to grow your business and networking. Their industry knowledge and expertise can be a source of good opinion and advice upon different matters. Business friends will be resourceful to find networks for you and bring in employees. But, the thing that needs to be considered is that they might not remain value add after the first few rounds of funding.

Industrial Investors

How about working with an industrial specialist? These angel investors have an in-depth specialized knowledge of the industry you are going to venture in. They have spent their whole careers in the industry and can be resourceful to bring future investors. But, what can stop you from having an industry professional to be your angel investor! You might have to welcome some uninvited advice from them!

Once-Removed Investors

Receiving investment from someone you don’t know personally! You might have been introduced to someone by your friend or colleague! And you might have told that Peter wanted to invest his money, so discuss your idea with him! It is hard to get them on one page with you! Why? Neither they know you nor your business idea! So, it can be long and tiring to convince such investors to fund your business. And an honest opinion is that it is tough to get such an investor on board in the absence of any additional angel investor who has already invested with your business.

The Wealthy Investors

They are more than an angel investor. So, you call them super angel investors. Wealthy investors have a proven record of funding for different startups or businesses. Being part of the huge venture capital community, they are always busy! You might have to experience a lack of interest and involvement from the wealthy investors if you are working with any!

We suggest you look for a mix of business, family, domain, and wealthy investors to back up your startup. Don’t rely on just one source. Finding some idea investors can help you to scale up your business like wonders!

How to Chose your Angel Investor.

You are the person who has a business idea. A business idea is like a brainchild for any entrepreneur. Be intelligent when you are choosing your angel investor. Communicate with the potentials and get the complete idea of what the person is thinking of a deal. Just as an instance, if you blindly accept an investment, you might later find out the undue interference of the investor in business operation. You must clear your terms and understand the viewpoint of the potential investor before actually started the deal.

Another important thing that can be neglected is how the investor can benefit your startup! An industrial person with expertise and diverse networking or a managerial person with investment can be the added value for any investment. So, be wise to choose your angel investor for the business!

We could help to get you started. So we did. To sum up, we answered following questions about angel investors:

  • What are angel investors?
  • What are benefits and disadvantages of angel investors?
  • What are types of angel investors?
  • How to choose them!

Best of luck for your stratup!

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Javier Nieto León

When I started as a Business Development Manager at a Tech Startup Vendor in 2014, I faced the issues and the pains about how hard it is becoming a global Tech Startups. The Startups Tips mission is to help your Tech Startups to go from Local to Global.

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