Angel investors are usually wealthy individuals who make equity investments in startups with their personal savings with the hope of reaping a large return. The size and terms of investments that they will make varies by the individual investor. Some angels organize into angel groups or networks to pool their resources.
Angel investors roughly invest anywhere from $25,000 to $50,000 for small businesses, and up to $500,000 for larger ones. In comparison to friends and family financing, which tends to bring in a couple thousand of dollars, and venture capitalists, who prefer investments in the multi-million dollar range, angel investment is a category of startup financing that bridges the gap. It is known as the second most common form of startup financing, after Friends and Family.
Because Angel investors accept high risk, they in turn ask for high return on investment, high equity stakes, and a very detailed and outlined exit strategy should the company fail.
Angels are well-known in the entrepreneurial world as private investors that financially back startup companies. They are typically around 45 years old and have already made a good amount of money in some sort of entrepreneurial adventure. Being a successful entrepreneur, they feel that they should give back to others in that are in the same situation that they were once in. Like venture capitalists, angel investing is a high-risk, high-reward game since the likelihood that a startup will fail is so high. And just like VCs, angels do not expect all of their money back from a startup they invest in.
However, there are some distinct differences between angels and VC’s. For instance, angels are not professional investors that represent an outside company. Instead, they are putting their own money into the company. As a result, angels tend to give less money to entrepreneurial companies than VC’s do.
Angel investors finance entrepreneurs for many different reasons. First and most importantly, angels are looking for a great return on their investment. Second, an angel will sometimes back a company because they trust the entrepreneur behind it. They also believe that they can be valuable and give the startup advice and knowledge that will help it succeed. Finally, angels also invest in companies for the thrill of it. They love taking chances with their money and see investing in entrepreneurs as a higher risk game than the stock market.