Angel investors (sometimes known as angels, business angels, or informal investors) are affluent individuals who provide money or capital to help start or grow a business, in exchange for debt or ownership equity. Sometimes angel investors are organized into groups or networks to help share insights and pool together their capital to reduce the risks of investing.
Unlike Venture Capitalists, an angel investor will typically be investing their own personal funds. The individual typically makes a personal decision whether to invest or not, it is not made by some sort of fund manager, although angel investment networks or groups sometimes have leaders who can sway opinion on what to invest in. An angel will typically have a formal entity such as an LLC or trust through which they pursue their investing. Angel investing is important because it fills the gap between friends/family and venture capital. Friends and family are often used to provide seed capital, and angels sometimes will as well. However, angels commonly provide funding after seed funding has been secured and the company is already in operation. Venture capitalists typically provide funding after an angel’s capital has taken the business to a certain size.
Most venture capital firms do not pursue investments below one to two million dollars, so angel investments provide a critical bridge between the early days of a startup and venture capital which can be secured at a later stage. Angel investments account for about the same amount as venture capital investments annually; however angel investments are more highly fragmented, with many angels pouring in small amounts, whereas in venture capital, it might be a smaller number of firms placing much larger investments in each deal. Approximately 10 times as many companies are funded by angels than venture capitalists. The approximate average amount of an angel funding is $450K.
Angel investment can be the key to success for a business. Securing money from an angel investor can literally make your dreams come true. The injection of cash into a business can allow it do things that it never could on its own. Once a company receives angel money, it can begin to truly market and grow on a large scale, often hiring the necessary staff to scale the business to new heights.