Angels are typically men and women that attained a certain level of wealth and can set aside large seed capital to invest in new business ventures. Amis & Stevenson considered Angel investing to be extremely risky but helpful to an entrepreneur that is trying to raise funds. Angels also operate in networks and have specific areas they choose to invest based on their expertise.
Angel’s invest based off of a company’s valuation. Entrepreneurs can either settle for an individual or host several angels. Depending on the terms of investment, Angels can become stake owners or be a coach to assist the entrepreneur as needed.
In the book, Entrepreneurial Finance – Third Edition: Finance and Business Strategies for the Serious Entrepreneur, Rogers and Makonnen discuss the positive and negatives of Angel investing.
- Seed capital available for true startups
- Angels are typically experienced business professionals that invest in their area of expertise.
- Angels are typically more lenient than firm investors.
- Some Angels require an active role in business decisions and operations
- Angel may only agree to invest a limited amount.
- Return on Investment must match seed capital and have excess residuals.
Angel investments are similar Venture Capitalist investments, except seed capital tends to be higher because of VC firm caps. Having an Angel investor is optimal for an entrepreneur because their venture is getting funded and investment capital does not require collateral. The hardest part for an entrepreneur is actually getting a meeting with Angels and having them believe in their vision and ability to give them a worthy Return on Investment (ROI).
Amis, D. & Stevenson, H. (2001). Winning Angels: The 7 Fundamentals of Early Stage Investing. London: Financial Times Prentice Hall
Roger, S. & Makonnen, R. E. (2014) Entrepreneurial Finance – Third Edition: Finance and Business Strategies for the Serious Entrepreneur [Kindle Edition]. McGraw-Hill Education & Amazon Digital Services LLC