What is an Angel Investor?

An angel investor is an individual who provides small amounts of startup capital and advice to businesses in exchange for an equity stake or convertible debt. These people can be of great assistance in providing funding when a business has just started, and it does not yet have a sufficient product concept to attract the attention of venture capital firms. They also do not usually require much control over the business, and so may not demand a board seat.

Characteristics of an Angel Investor

An angel investor is typically a high-net worth entrepreneur or professional who is willing to put some money at risk on ventures that may fail, but which also present the possibility of a significant payoff. This means that they search for investment opportunities that can yield an annualized rate of return of at least 20%, and preferably more. Angel investors may invest through crowdfunding platforms, individually, or by pooling their funds for investment with other angel investors.

Angel Investors vs. Venture Capital

Angel investors differ significantly from venture capital firms, which typically invest other people's money, invest at a somewhat later stage of corporate development, invest more money, and take a more active role in the daily affairs of their investees. In general, angel investors put money into smaller firms early in their development cycles, while venture capital firms do so after the firms have a proof of concept and need additional cash to expand.