What is an angel investor?
An angel investor is an affluent person who invests in small start-up businesses to help them get off the ground. Angel investors typically invest their own money, either through a one-time investment or ongoing support, in exchange for ownership equity or convertible debt.
Where have you heard about angel investors?
Some angel investors invest through popular crowdfunding platforms like Kickstarter or pool their capital in angel networks. Indeed the accessibility of today's crowdfunding platforms has created a new breed of angel investors: from doctors and lawyers, who previously wouldn't have had the time, to successful entrepreneurs looking to mentor the next big thing.
One example of an angel investor is Maurice Pinto, who invested £200.000 in 1999, in the start-up Innocent Smoothies. They are now Europe’s leading smoothie maker, and Coca Cola bought an 18% stake in the company in 2009, increasing its stake to 58% in 2010.
What you need to know about angel investors.
Angel investors usually offer more favourable terms than other lenders, so they are perfect for entrepreneurs who are struggling to cover the costs of starting up their business.
They assume a fair bit of risk as they could lose their entire investment if they fund a business that fails early on. For this reason, they often look to mitigate the risk by looking for investment opportunities with a clear exit strategy or through initial public offerings (IPOs).
The term was first used to describe wealthy individuals who gave their own money to finance theatrical productions on Broadway. Similarly, angel investors tend to back the entrepreneur rather than the potential profit or viability of the business. Often angel investors are family or friends with entrepreneur but they must also be accredited by their country's securities commission.
Find out more about angel investors.
Although they both invest in start up businesses, angel investors are the opposite of venture capitalists. Find out why.