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Angel Investor Basics

by Taylor Stewart on Wednesday, December 4th, 2013

What Is Angel Investing?

Angel investors are generally a group of professionals – attorneys, doctors, CEOs, former business partners and seasoned entrepreneurs – that come together to help the next generation of business folks. The good thing about these folks is they are generally financially well off and don’t mind invest money into a person’s business as long as they get into the action.

How Does Angel Investing Work?

In order for angels to become accredited investors, they must meet the definition set forth by the Securities Exchange Commission (or SEC, for short). Potential angels must have a $1 million net worth and make a minimum of $200,000 a year ($300,000 a year with spouse).

Angel investors will provide entrepreneurs with money, which, in turn, you’re giving them company equity. Angel investments typically go for approximately $600,000.  With the increase number of angel groups, there are many investors involved in the majority of the investment rounds.

Positive Aspect: These investments are great for already established businesses; ones beyond the initial start up phase; but are still in their infancy that they must have capital for their marketing strategy or create a product.

A good number of businesses that get help from the angel investments have some revenue but still need cash to increase its brand awareness. Angel investors can give this to business owners and become an integral part of the business.  Since it’s their money going into the business, they’ll do whatever they can to see you succeed.

Negative Aspect: It’s possible that you’ll put up to 50 percent of the business at stake. And, it’s possible the investors will see you as the being the reason your business isn’t succeeding, firing you from it.

Think of angel investors as venture capitalists – they want to see a light at the end of the tunnel that gives them a return on their investments.  Therefore, you may need to give up the business before you’re through with it yourself.

How Can You Get An Angel Investment?

There was a time that angel investors were rich people business owners knew. Or, they were seasoned entrepreneurs who were found using the local Chamber of Commerce, Small Business Development Center, or a highly respected and trusted accountant, attorney or banker.

Today, however, angel investors are thriving and multiplying, giving lots of advice and mentoring along with providing them money.