How Angel Investing For Startups Works

Angel investors can be individuals or groups of individuals. They are typically experienced business professionals with a track record of success. They may have worked as entrepreneurs themselves or they may have been involved in early-stage ventures through prior jobs or investments.

Angel investors tend to be less focused on short-term returns than other types of investors and more interested in backing high-risk, high-reward opportunities.

Angel investing has grown significantly over the past decade as more startups are looking for funding beyond venture capital firms. According to the University of New Hampshire’s Center for Venture Research (CVR), angel investment activity increased by 200 percent between 2000 and 2008, with total angel investments reaching $23 billion in 2008 alone.

Angel investors typically provide their own capital and invest in small, privately held companies that have the potential for growth but generally lack access to traditional financing from banks or venture capital funds.

Investors look at startups’ business models and financial projections, but they also try to gauge whether the entrepreneur has what it takes to succeed.

For many startup companies, angel investors provide capital that can be used to cover initial expenses such as rent, legal fees and equipment purchases before they’re able to attract larger investments from venture capitalists (VCs). In return for that service, angels often receive convertible notes — debt instruments that give them ownership shares when a company goes public or gets acquired.

Angel investors typically provide their own capital and invest in small, privately held companies that have the potential for growth but generally lack access to traditional financing from banks or venture capital funds.

Investors look at startups’ business models and financial projections, but they also try to gauge whether the entrepreneur has what it takes to succeed.

For many startup companies, angel investors provide capital that can be used to cover initial expenses such as rent, legal fees and equipment purchases before they’re able to attract larger investments from venture capitalists (VCs). In return for that service, angels often receive convertible notes — debt instruments that give them ownership shares when a company goes public or gets acquired.

• Angel List
• Angel Capital Association
• Gust
• Angel Forum
• Angel Investment Network

You should consider what you value most when looking for a prospective angel investor. Once you’ve identified your preferences, it will be easier to find the right person or people to help you scale your startup.

When looking for an investor, you should consider his or her experience and accreditation. Accreditation does not necessarily matter, but look at how the investor’s prior investments turned out to help you determine what is best for you.

When you’re a first-time founder, it’s best to look for an angel with plenty of prior experience.

When you are seeking funding from an angel investor, they should be high net-worth individuals with no problem writing you a check for a specific amount. It’s as important to make sure that they can afford the investment without making demands for cash from you because they need it.

As a startup founder, you have so much on your plate. You need help at times, especially with fundraising and finding the most talented people to join your team. An angel investor with connections to others and a record in the industry is one of the best people to ask for help.

Once you have identified some potential investors and determined what makes them a good fit for your startup, you are now ready to start comparing them and making the best decision for your unique needs.

Before beginning a negotiation with potential investors, it is best to discuss goals and the future of the business. This should include the amount of capital needed, equity and decision-making control.

Establishing goals from the beginning will help you avoid confusion later on.

When you have a chance to discuss your goals with your angel investor, you can get to know them better, learn how involved they would like to be in the startup, and start to build a relationship with them.

It’s important to use this time to define what your relationship with them might look like. Some angels want to be involved and advise startups at every step, while others prefer to invest and provide counsel only when it is requested.

Approach each call as an interview, and treat your startup as if it were a living, breathing entity. Do not become impatient with investors who can’t commit to your vision or schedule; instead, look for partners who will work with you to scale your business.

To help you ace this phase of prospecting, write down your notes from calls, prepare questions for every conversation, and do plenty of research about the person or company before you meet with them.

Venture capitalists are professional investors who invest in startups that are seeking government funding, and they make those investments with the expectation of getting a good return on their money. They typically do not make these investments themselves, but rather give money to other investors who then use it to back startups.

Angel investors are a type of investor who provides funds to startups. They provide some funding and expertise to help the company grow, but they won’t take on the same level of ownership as VCs or PE firms typically do. The term “angel” comes from their role as an angelic guardian who helps entrepreneurs navigate the journey from idea to success.