Who Are Angel Investors?
Angel investors are high-net-worth individuals who provide financial backing for small startups, typically in exchange for ownership equity. Unlike venture capitalists who manage pooled money from institutions, angels invest their own personal funds.
They are often successful entrepreneurs or executives themselves and are looking to invest in the next generation of innovators. They are the primary source of capital for startups in the pre-seed and seed stages, bridging the gap between friends-and-family funding and formal venture capital.
Characteristics of Angel Investors
- Invest Their Own Money: This makes the investment decision highly personal.
- Focus on Early Stages: They are comfortable with the high risk associated with early-stage companies (pre-product, pre-revenue).
- Invest Smaller Amounts: An individual angel might invest anywhere from $10,000 to $100,000. A group of angels (an angel group) might invest up to $1M or more.
- Often Provide Mentorship: Many angels are motivated by more than just financial returns. They enjoy mentoring founders and lending their expertise and network.
- Accredited Investors: In most jurisdictions, angels must be "accredited investors," meaning they meet certain income or net worth requirements.
Pros and Cons of Angel Funding
Pros
- Access to Capital: They are one of the few sources of capital for very early-stage, high-risk ideas.
- Valuable Mentorship: An angel with experience in your industry can be an invaluable guide.
- Faster Decisions: Angels can make investment decisions much faster than VC funds, which have more complex internal processes.
- More Flexible Terms: They may be more flexible on valuation and other investment terms compared to VCs.
Cons
- Limited Follow-on Funding: Unlike a VC fund, an individual angel may not have the capital to continue investing in your subsequent funding rounds.
- Can Be "Dumb Money": Not all angels are experienced operators. Some may provide bad advice or become a distraction.
- Smaller Networks: An individual angel's network is usually smaller than that of a well-established VC firm.
How to Find Angel Investors
Finding the right angel investors is a networking-intensive process.
- Warm Introductions: The best way to connect with an angel is through a warm introduction from a mutual contact (e.g., another founder, a lawyer, an accountant).
- Angel Groups: Many cities have formal angel groups where investors pool their resources and review deals together. These groups often have websites and application processes (e.g., Tech Coast Angels, New York Angels).
- Online Platforms: Websites like AngelList, Gust, and F6S connect startups with angel investors.
- Networking Events: Attend local startup events, demo days, and pitch competitions. Be there to build relationships, not just to ask for money.
When you meet a potential angel, do your homework. Look for angels who have experience in your industry and a good reputation in the startup community.