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An angel investor, also called investor godfather or proximity investor, is a prosperous individual who provides capital to a startup or emerging company, usually in exchange for a shareholding. In addition to financial capital, they contribute their appropriate business or professional knowledge to the development of the society in which they invest. Angels naturally invest their funds, unlike venture capital firms, which professionally manage money from third parties through a fund. An increasing number of angel investors are establishing themselves into angel networks, groups or clubs to share efforts and pool their investment capital.
In financing a startup business, Angel capital fills the gap between the three Fs of seed capital and venture capital entities. While it’s hard to get more than $100,000 from family and friends, most venture capital firms won’t consider investments of less than $1 million (varies by country). Therefore, angel investments are usually the second round of financing for startups .with high growth potential. In the US, it represents more money invested annually than all venture capital entities combined: specifically 25.6 billion dollars vs $25 billion in the US in 2006, at 51,000 companies vs 3,416 companies, according to the Center for Risk Research at the University of New Hampshire. According to the same statement, the number of active investors in 2005 was 234,000.
Angel investors select their investment projects by assessing the business plan presented by entrepreneurs according to their investment criteria. These investments face incredibly high risk and therefore require a high return on investment (ROI). Angel investors tend to support startups at the early stages (when the chances of the startups failing are relatively high) and when most investors are unwilling to support them.
Characteristics of the angel investor
Among the characteristics of the angel investor, the following stand out:
- It seeks to be current in the entrepreneurship hubs to get in touch with innovative specialists who need financing for their startups. Such companies are characterised by promising exponential growth if they prosper.
- Not only do they lend money and become involved in the project they finance. In some cases, they offer their business information. Thus, they help decision-making and are part of their knowledge and professional contacts.
- They assess not only the speed of return on investment but also the ability and determination of the entrepreneur., Unlike a venture capital fund, asset management was not outsourced to a third party. An angel investor manages his own money and decides where to put it.
- The capital provided by the angel investor is usually paid back with the startup’s share.
- They group into networks or clubs organised by public or private institutions, for example, universities or higher education centres.
- Angel investors are a minor source of funding. Entrepreneurs turn to family, friends and professional contacts after knocking on their doors.
Angel investors are also known as sponsoring investors or proximity investors.
Business Angel”, a help that goes beyond capital
The support beyond the economy is one characteristic that differentiates the ‘business angels’ from other types of investors. Whose role is usually limit to capital contribution in exchange for a percentage of the company? On the other hand, the ‘business angels’ have a position closer to the company and closely monitor the project and sometimes tutor it.
In this way, this type of investor usually approaches the figure of the mentor or guide. Who decides to put his experience and knowledge at the service of entrepreneurs.
It is a private investor willing to collaborate on a business project. In addition to financial capital, this type of investor also contributes his business knowledge, as he is an experienced investor.
Unlike the usual patrons, business angels have experience and guide the entrepreneur to make the business profitable for both parties. In the beginning, highly successful companies had business angels who supported innovative ideas in their initial phases.
These investors invest their money in not only a project but also their time. In addition, the network of contacts of the business angel also helps in the new business plan.
Most angel investors want to see a well-crafted business plan before deciding whether to invest. That means you must consider and present all likely risks. You would also avoid being overly optimistic about revenue estimations. If you can, include early evidence of momentum toward your plans, such as early sales numbers or positive customer feedback.
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