Angel investors are typically high net worth individuals who look to put relatively small amounts of money into startups, typically ranging from a few thousand dollars to as much as a million dollars.
Angels are often one of the more accessible forms of early stage capital for an entrepreneur and as such are a critical part of the equity fundraising ecosystem.
The Benefits of an Angel Investor
The most beneficial aspect to working with an angel investor is that they can usually make an investment decision on their own. Not having to manage a partnership or corporate hierarchy of decision-making allows the angel investor to make bets that they feel comfortable with personally. Often this is what an entrepreneur needs, early in their startup’s development.
Angels also tend to have subject matter expertise in a particular area, often where they have made money before. This helps the entrepreneur in a couple huge ways. First, they won’t waste the entrepreneur’s time asking uninformed questions because they already know the space. Secondly, they tend to be well-connected in particular industries, so the value of their investment also includes the resources they can bring to help the venture in the future.
What an Angel Investor is NOT
Unlike what the term may imply, an angel investor isn’t a happy angel falling from the sky that is there to answer your dreams with a big fat check (although that sure would be nice).
Angel investors do not bail people out of personal or business credit problems. They do not make charity investments because an entrepreneur feels their idea is really important to the world. They make investments to make a healthy return on their investment – rarely otherwise.
Angel Investor Networks
Angels often band together to form angel investor networks. Since every angel has to sift through the same types of deals over and over, it helps to share deal flow and combine resources to find great deals.
Angel investor networks are really useful to entrepreneurs because they tend to have a more formalized process for reviewing new submissions and can also introduce the entrepreneur to a lot of new angels at once.
Think of working with an angel investor network as a way to broadcast your deal to a large number of qualified candidates all at once. In some cases even if the network itself does not invest as a group, you may attract the attention of a particular angel in the network who decides to invest.
There is no definitive limit on what a single angel investor can invest, but a typical range would be from as little as $5,000 to as much as $5,000,000, although most angels tend to cap out around $500,000.
Angels may also invest incrementally, offering you a small investment now with the opportunity to follow-on at a later date with additional investment, typically when something important happens with the business.
If you’re raising equity capital, you’re almost certainly going to be dealing with angel investors. They come in all shapes, sizes and preferences which is often a good thing.
When you’re pitching to angels, you’re often pitching to smart people who’ve had some success. Be sure to approach them with an extremely professional pitch that they’ll respect. At one point they were probably sitting in the same chair you are now, so while they may seem intimidating at first, they probably know exactly where you’re coming from.