Is your startup looking for an angel investor?
If you’re searching for investment capital to support your entrepreneurial dreams, read on. We’ll discuss where to find angel investors, the differences between angel investors and venture capitalists, and how to source the funds you need to succeed.
Background on angel investments
The term ‘angel investor’ originates from Broadway. An “angel” was a wealthy individual who made beneficial donations to a theatre to support productions.
Professor Bill Wetzel at the University of New Hampshire (UNH) dedicated his life to researching the techniques used by entrepreneurs to collect capital. The 1978 study defined terms such as “angel investors” to explain how wealthy individuals invested in startups.
Years later, in 1984, Professor Wetzel established the Centre for Venture Research for further research on angel investments, and to study successful entrepreneurial journeys.
What are angel investors?
Angel investors are affluent individuals who provide financial support for startups in the early stages of development, as well as for entrepreneurs who create new business ventures. In recent years, it’s estimated that about 300,000 people identified themselves as angel investors.
According to data collected from the Centre of Venture Research’s 2021 analytical report, angel investments reached $29.1 billion, a 15.2% growth from 2020. Active investors exceeded 363,000 — an increase of 8.6% — in contrast to 2020’s list, which only included 334,680 angel investors.
The key services that angel investors provide to benefit a new business are:
Capital to get your startup off the ground and gain or sustain momentum.
Entrepreneurial expertise to help less experienced founders achieve growth.
A network of contacts that can help founders establish relationships with influential leaders in their industry.
Comparing angel investors and venture capitalists
What’s the difference between angel investors and venture capitalists?
A key differentiating factor is the stage at which angel investors provide capital to startups. Angel investors are more likely to invest in a business during seed stage. Venture capitalists typically join angel investors in financial support once a startup is more established and projects high growth potential.
Angel investors are recognised as experienced assets for startups because they’re often successful entrepreneurs themselves, and therefore have the ability to share valuable information with new business owners.
Angel investors vs venture capitalists
Here’s a rundown of how angel investors and venture capitalists differ from each other.
Affluent individuals who use their personal finances to provide support for a startup.
Typically less risk-averse than venture capitalists.
Invest their time, resources, experience and skills in the success of a startup.
Play more of a supporting role with less control and demand over how you run the business.
Investors that use other people’s money and are hired as a third party by a risk capital company.
More concerned with growth potential and less eager to invest unless they can see a direct route to future profit.
Venture capitalist firms generally invest a larger amount for a higher stake in equity.
Demand for some operational input with more control and influence over the business.
To learn more about the venture capital perspective, explore this podcast:
What are the risks and benefits of angel investment?
During a startup’s early stages, angel investments provide several benefits and limited risks.
A key benefit of angel investments is that it gives your startup the credibility it needs to attract future investments, specifically from venture capitalists. Typically the more influential an angel is, the more they’ll help your startup stand out from competition and appeal to other investors.
One thing to bear in mind is that your startup isn’t inherently guaranteed to succeed because of an angel’s investment or involvement. Many businesses still fail even if they’ve secured funds from angel investors or venture capitalists.
How much equity do angel investors take?
Angel investors provide financial security for new business ventures to get off the ground. However, angels don’t invest for free.
So, how do angel investors get their money back?
In exchange for capital, angels take shares of equity in the business. They usually ask for an average of 10% to 25%.
How to find angel investors
Here are some resources to help you find and choose the right angel investors for your startup:
According toBeta Boom's research, here are the top 10 of 50 angel investors for 2021.
Number of investments: 37
Exit rate: 73%
Number of investments: 22
Exit rate: 63.6%
Number of investments: 57
Exit rate: 61.4%
Number of investments: 23
Exit rate: 60.9%
Number of investments: 23
Exit rate: 60.9%
Number of investments: 34
Exit rate: 58.8%
Number of investments: 95
Exit rate: 57.9%
Number of investments: 21
Exit rate: 57.1%
Number of investments: 31
Exit rate: 54.8%
Number of investments: 22
Exit rate: 54.5%
Learn how to secure an angel investment for your startup
To secure angel investments for your startup, you need to be prepared to pitch in depth details about your startup’s business plan and strategies. Before you share your pitch with investors, practice perfecting your pitch so that it will leave them feeling inspired and informed about your business.
What do angel investors look for in a startup?
Angel investors are looking for several things in a startup, but the first thing is a clear business proposal. Your pitch should include forecasted turnover rates, profit margins, sales and growth potential.
Angel investors also look for an engaging mission statement, a profitable purpose and a strong business strategy.
To be considered for angel investments, you should ask yourself the following questions:
Is your business pre-profit, pre-revenue or projected to be profitable?
What is your annual turnover rate, profitability, sales, growth and earnings potential?
How much capital are you looking for to get the company off the ground? Typically, you’ll be asking for a figure between USD25,000 and USD500,000 for an initial investment.
How much equity are you willing to give away in exchange for investment?
Will you be able to work with this angel investor for roughly three to eight years?
Angel investors want to invest in companies with strong earning potential and inspiring mission statements. They need to believe in your business as much as you do. Practice your pitch!
[Related: How to calculate opportunity cost]
To summarise what we’ve discussed, review this list of important takeaways:
Angels are high-net-worth investors who financially support startups in exchange for a share in the company (between 10% and 20%).
Angel investors invest their own money to help a startup succeed. Venture capitalists may offer financial support once the company reaches a stage of growth potential.
Angel investors usually work with startups for three to eight years.
Angel investors are usually experienced entrepreneurs. In addition to providing financial support for startups, angels share their expertise to guide new entrepreneurs.
Compared to other investment options, angels allow you to remain in control of your company.
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