Join Rudolph Rosenberg for an in-depth discussion in this video Getting to know angel investors, part of Raising Startup Capital.
- Angel Investors, often called Business angels are very wealthy individuals who invest their own money into startup companies, usually at their earliest stage. They are accredited investors but most of them are not professional investors. They are successful entrepreneurs, people who held high management positions in leading firms, and sometimes just wealthy people. Angel Investors, invest in startups for many reasons.
It can be as a hobby, a way to stay active after having retired, but also a willingness to promote entrepreneurship by helping entrepreneurs, in other cases they invest because they believe in the project and want to be part of the potential next big thing. They all have at least one thing in common. They invest their money to get a significant return on investment. They invest in companies in their infancy when it's not clear yet that the company will be successful in its market and sometimes even before it has earned its first dollar.
Many Angels specialize in certain fields or market based on their own experience. One of the big difficulties when you invest in startups, which we will see is also shared by venture capitalists, is that you invest in companies that are supposed to have a game changing product. And to be able to understand the potential of that product you have to have some experience in that market. So it's only logical that investors focus on fields they know so that they can have a solid opinion on the potential for success of the companies they invest in.
Now let's talk about the types of investments Angel Investors get into. Usually they tend to invest individually between $25,000 to $200,000 per deal which is usually insufficient in itself. Angel Investors therefore group around the deal to invest together amounts that range between $100,000 to $1 million dollars and on average, they invest as a group around half a million dollars per deal.
Angel Investors are the stepping stone between the funding you get through your own means plus debt and venture capital. Companies that approach Angel Investors usually have a specific project they need to deliver such as developing a product to the point that it can hit the market or put in place the structure the company needs to generate large scales of revenue. It's those kind of big milestones that Angel Investors are looking to fund so that upon their completion the company can have its next round of funding potentially with venture capital.
- Estimating the capital you need
- Understanding the four big sources of capital
- Valuing your business
- Making a business plan
- Using your own funds
- Limiting your personal liability
- Making crowdfunding a part of your strategy
- Borrowing from friends and family
- Working with angel investors and VC firms