Angel investing looks incredibly glamorous on television shows like Dragon’s Den or Shark Tank, but it’s a tough slog for most entrepreneurs. The process can be daunting because angel investors don’t hang around the bank looking for startups to invest in. Let’s shed some light on the angels that help startups:
So, what IS Angel Investing?
Angel investing is the process of an accredited investor providing an initial lump sum of cash (in exchange for ownership or equity) to help a startup or entrepreneur take their first business steps. Many entrepreneurs strive to find an angel investor with similar values, complementary business connections and sufficient capital to make an investment. Common avenues to source angel investment are online crowdfunding, angel investor networks of pooled capital and word of mouth, typically within the industry. Angel funded startups are substantially more likely to succeed in terms of hiring, chances of an exit, better web traffic and more.
Who is considered an Angel Investor?
The term “Angel” is actually derived from the theater, equivalent in connotation to a ‘Patron’ of the arts. Opposite to a venture capitalist, angel investors are individuals who are deemed accredited by the Securities and Exchange Commission (SEC), which means they must meet the minimum standards of having a million dollar net worth and earning a minimum annual income of $200,000; $300,000 combined if married. Traditionally, there is no set amount that angels can invest in a startup. In exchange for their startup capital, angel investors generally receive a fair share of equity ownership. However, they still carry significant risk of losing their investment due to dilution or a failed venture. Angels with management advice and a strong network of contacts are preferred because they can help steer the startup ship more effectively than just money alone.