Angel investors

- When you're just starting a company, you may not have anything more than a story and a dream to show a potential investor. Without any real market traction, revenue generated, or a product to show, it's tough to convince someone to back your idea with their own cash. In fact, someone may need to be an angel to support you that early on. And that's exactly where the term "angel investor" comes from. Angel investors, or angels, are high net worth individuals who invest their own money into companies. Generally, angels are accredited investors, but that's not necessarily required. Angels have played a key role in the beginnings of companies for a long time. They're often some of the first capital into a company, taking on a lot of personal risk. Banks typically won't grant a loan without some traction or collateral, and venture investors usually wait until there's market traction before putting their investors' capital at risk, but angels are only responsible to themselves, so they can make decisions about deploying capital quickly. That means that if you convince an angel that they should invest in your company, they may even write you a check on the spot. So why do angels take this risk? Often, angels have a background in starting companies themselves, so they're paying for the help they received early on. They may just take a particular interest in you or your idea. They may have a background in the industry that you're entering. Or they may just have the funds to invest in high risk-high return opportunities, and this is part of their overall investment strategy. All angel investors are different because they each have wildly different life experiences, and the way they came into that capital is unique. They will have varying degrees of sophistication when it comes to startup investing, their own reasons for investing, and their own unique interests. So although I refer to the whole group as angel investors, remember that they're all quite unique. Angels typically write checks for tens of thousands or hundreds of thousands of dollars. Because they're taking a big risk, and because they're using their own money, it's unlikely an angel will write a check into the seven figures. And because they write smaller checks than an institutional venture firm, they usually don't participate in later funding rounds. But be careful about the angels you accept money from. Taking on any investor is the beginning of a serious relationship. Even if your angels won't be adding more cash in later funding rounds, your future investors will have to get along with those angels. So if someone is demanding bad deal terms or is known to be hard to work with, that will affect your future investment opportunities. And not all angels are created equal. You may have heard the terms "smart money" or "dumb money" before. These terms often refer to angel investment. Some angels not only have money, but experience relevant to your idea. This is what "smart money" refers to. If an angel isn't bringing anything to the table other than cash, that's what "dumb money" refers to. It's better to have smart money than dumb money, but depending on your need, it's probably better to have dumb money than no money. You can make that call for yourself, but make sure you consider the consequences.