What Is an Angel Investor?

An angel investor is a person who provides their own personal funds to entrepreneurs in the early stage of a start-up business. Angel investors usually have a business background and most are accredited investors as defined by the Securities and Exchange Commission (SEC) as having a net worth of at least one million dollars or have made at least $200,000 during each of the prior 2 years. Angel investors have more than just a financial interest in a business, as they will often act as mentor or consultant to ensure the start-up will succeed.

Financing A New Venture

Start-up businesses are limited in their financing options since many traditional sources will not want to take on the risk of a new venture. After friends and family resources or lines of credit have been tapped, a start-up needing additional funding can seek out a couple of alternative sources of financing. Venture capitalist, a company that pools together several sources of funding, usually fund projects in the million dollar range. The angel investor is perfect for the start-up looking for a second source of funding on a much smaller scale. It’s estimated that angel investments range between 20 to 50 thousand per project. Angel investors typically provide equity arrangements for financing a business. Since they plan on one third of their angel investments to fail, they require a higher return than a traditional financing source.

Do Your Homework

It is estimated that angel investors dismiss the majority of the projects that are presented to them, however, an airtight comprehensive business plan can help you get your idea in front one. Your business plan should include:

 • An executive summary which describes your business, your target market, and your competitive advantage.
 • A description of the industry.
 • A description of the products or services you are offering.
 • How you expect your business to profit determined through market research and analysis
 • The operating budget for your business.
 • A marketing plan.
 • A description of the key positions, and the people who will be managing the business.
 • A financial plan which should include a cash flow analysis and 5-year projections.

Once you have put your business plan together you will need to locate an angel investor which until recently was a time consuming process. Fortunately, now there are many websites available that angel investors use to locate new ventures. For a fee, you can submit your presentation online to connect with an investor. Since most will want to take a hands-on approach with their investment and your business, most angel investors will want to work with a business close to their proximity. 
In Business with Your Angel

When looking for financing, also take into consideration how well you can work with the angel investor. Not only will they provide you the funding, but they can be closely intertwined with your business operations. Each will have their own individual requirements and expectations. An angel investor may want to participate in your business by:

 • Becoming a board member or taking on a consulting role.
 • Requiring quarterly reports on the performance of their investment.
 • Taking a 5 to 25 percent ownership.
 • Requiring you to not take certain actions without their prior approval.

blog comments powered by Disqus